Economists don’t like to forecast recessions. When they do, no one thanks them, and if they are wrong their jobs are on the line. George Soros the multi-billionaire investor and humanitarian has been talking about a global recession for some time. Soros believes 2016 will be the year that developed nations will join the emerging markets that are currently in recession mode.
Bloomnerg.com recently interviewed Soros in order to get some details about his prediction, and to find out what, if anything, could be done to avoid it. Soros said there are many contributing factors to this new recession, and it will be as bad, or even worse, than the 2008 housing and mortgage meltdown. Soros described what a recession is in simple terms during the interview. He said recession is a period when there is a negative output gap. The actual GDP performance is well below the potential GDP potential. In other words, excess manufacturing and export capacity continues for a year or longer.
Mr. George Soros said a moderate recession started in 2015, thanks to China’s economic instability.
There was negative world trade growth in the first half of 2015. There are weak commodity prices now, and the global inflation rate is low, plus global stock prices are down and corporate earnings growth was stagnant in most countries. Those facts are signs that a recession on the scale of a 2008 recession is about to blow the lid off of economic growth in second half of 2016, according to Soros.
The problem, as Soros describes it, stems from the emerging markets and, he also said China was the root of the issue. Emerging markets are not performing. China’s performance will be well below the projected 6.5 percent GDP growth rate. Soros believes it will be closer to 3.5 percent, and in Chinese terms that is considered a recession. That means Asian countries will be right behind China, and the rest of the world will follow. The U.S. economy may be growing by more than 3.5 percent now, but Soros predicts that rate is unsustainable because of the Chinese debacle and the emerging market slowdown.
Soros thinks interest rates will have to be cut in the second half of 2016 to stimulate growth. The Feds are considering another rate hike, but Soros says that hike should be put on hold. England and the central bank of Europe will have to do the same thing in order to stop some of the economic bleeding. Visit Open Society Foundations website to know more about George Soros.