Soros says US is already in a slump
FROM GARY DUNCAN, ECONOMICS CORRESPONDENT, IN DAVOS
THE United States’ rapid economic downturn has probably already tipped it into recession for the first time in a decade, George Soros, the financial speculator, said yesterday. The comments by the Hungarian-born financier shattered a comfortable consensus among the world’s corporate and political leaders at the World Economic Forum. With few exceptions, the ministers, senior officials and corporate executives gathered in the Swiss ski resort of Davos have predicted that while the American economy is slowing sharply, it should escape recession.
Their confidence has been underpinned by their continuing faith in the ability of Alan Greenspan, the US Federal Reserve Chairman, to stave off recession with aggressive cuts in American interest rates.
Mr Soros challenged this assessment.
“Most likely, we are in recession right now,” he told participants at the forum.
His comments came as the Federal Reserve’s interest rate-setting open market committee begins its latest meeting today. After a surprise move to cut US rates by half a percentage point at the beginning of the month, it is widely expected to order another half-point cut as it strives to give fresh momentum to America’s previously unstoppable expansion.
Mr Soros suggested, however, that the Fed may already be too late to forestall a recession. “The Fed is aggressively reducing interest rates,” he said. “I don’t know how much they need to move. They don’t know how much they need to move.”
He said he was “pretty convinced” that, if anything, the powerful US central bank, helped by “a great deal of freedom to move”, would do too much rather than too little in response to the threat of a US crisis. “They are more likely to overshoot,” he said. “They are determined to do whatever is necessary.”
Mr Soros added that he was concerned about how the global financial system, and Asia in particular, might weather a deep American slump. He shared other participants’ pessimism about the economic outlook in Japan.
“Obviously the Japanese system is sick,” he said. “They are regressing again. The banking systems in Korea, Thailand and Japan are not in good shape.”
The financier, whose speculative attacks were instrumental in Britain’s forced ejection from the European exchange-rate mechanism in 1992, offered a more positive assessment of prospects in Europe, however, where he expected that structural reforms in key countries such as Germany, tax reductions being made this year and a lesser direct involvement by ordinary citizens in the stock market would mean a less pronounced slowdown than across the Atlantic.
Yet he also sounded a note of caution to European policy-makers, who have been celebrating seeing their economies poised to overtake growth in the US. “I do think Europe will be more affected (by the American slowdown) than the authorities reassure us is the case,” he said.
Mr Soros suggested that the US downturn could fuel criticism of globalisation. Despite deep Fed cuts in US interest rates, countries in emerging markets could suffer a flight of capital as the world economy suffered knock-on effects from America.
After anti-capitalist protests by demonstrators turned violent at the weekend, with more than 100 protesters arrested by Swiss police, Mr Soros said that he shared the view that globalisation raised genuine issues of concern, but he said the methods of those involved in the Zurich clashes were unacceptable. Indeed, the prospect of facing similar actions in Thailand has persuaded Mr Soros to pull out of a visit to Thailand, where he was to have addressed business leaders on Thursday.
“I have got a bad cold,” Mr Soros, 70, said. “I have been sniffing all day long and I think I am not in good shape to take eggs and so on. If I were in a good sporting spirit I would go, but I am not feeling so strong.”
“We regard Mr Soros as a Dracula — he sucks the blood from the poor. If speculators like him had some ethics in their minds, our situation would not be so bad,” Weng Tojirakarn, one of the protest organisers, said in Bangkok.