Inflation may hit India, China growth storyby Opinion Express October 1, 2016 0 comments
Legendary investor George Soros has said that the Indian economy is under pressure because of rising inflation. Soros, the chairman of Soros Fund Management, “India is in a different position because India has very good domestic based growth. But inflation is a much bigger threat for India than it is for the United States and the developed world,” he said.
Soros said that the pressure on commodities continued to be strong but discounted projections that pegged crude oil price touching $200 per barrel in the short term. Soros said that rising commodity prices is likely to affect emerging economies like China and India. “China is in danger of running into wage price spiral because the authorities seem to have lost control of the situation,” he said, adding that there will be pressure on the Indian stock markets too. Soros attributed the high food inflation in many emerging markets to global warming. “I think that the pressure on food prices is a consequence of global warming. And that of course is a great danger for the world. And not enough … not enough is being done about stopping global warming. And that is to me … one of the most disturbing issues,” he said. Soros said that China’s growth had been been phenomenal but there might be worries in the short term. “India has started growing significantly faster than it used,” he said, but the growth needs to be inclusive. “I actually think that both developments are very real. But particularly for China which is growing so rapidly it is so easy for it to get off the rails. And I think there is a danger…China is not a democracy. And therefore if things get off the rail …they could get off the rail very far … be- cause they don’t have a mechanism for … to … for changing the Government … or changing the leadership. So it is something to worry about. But so far it has been absolutely phenomenal growth. And I think India also has started growing significantly faster than it used. So those are I think positive developments … not without some shadows… in terms of income distribution … differences be- tween rich and poor … and so on. But on the whole I think positive,” he said.
Soros was more confident about the global economy though. He said, “You have had a big boom in commodities and as a result of which the deflationary pressures (in US and Europe) have disappeared. This is very welcome news for the United States because you still have quantitative easing going on. So actually a result you have negative real interest rates. That is very good for the stock market and that is what you have seen in the strength of the stock market.”
Soros said that the rising commodity prices will not get out of hand because “as soon as the quantitative easing (in the US) ends, interest rates are going to go up quite sharply in the developed world. And that is going to choke off the recovery. So it is a rather temporary movement now that you have this. So I am not so sure about inflation really becoming that serious a threat be- cause it will choke off the global recovery.”
Soros said that the Euro had emerged as a source of disruption in Europe and is likely to give rise to anti-European sentiments. “The Euro was supposed to bring about convergence among the European countries. It actually worked the other way. We have divergence. You know Germany doing very well typically. Spain in a financial collapse and there is unemployment. So you now have two speed Europe. And if that is allowed to continue for a number of years it inevitably will create tensions and anti-European sentiment. So I see a political danger but not all immediate … I am not talking about tomorrow. I am talking in terms of three to five years but that … it should not be allowed to continue like that for that long because it could eventually cause a lot of damage,” he said.
– OE News Bureau