Krugman talks India and China

Question: India’s Finance Minister said growth will return to 9%, is that true?

Paul: I don't think that’s right.  I mean, I haven’t studied India at all closely, but, you know, there… this thing, this crisis is having ripple effects all the way through.  Now, India, you know, on the surface, shouldn’t be that exposed to financial stuff, but I’m being told that there’s more reliance on external and particularly dollar financing for a lot of corporate expansions than people realize, and so, they’re actually being hit quite directly from the financial freeze.  The demand for a lot of goods that emerging markets export is dropping off.  You know, if you’re, not long ago, [IB] was thinking it was in pretty good shape, but all of a sudden, well, you know, commuter jet aircraft.  Right now, there could be a lot of orders for those for a while, so all of these things hit.  And then, the financial stuff is spreading, not so much to major emerging markets, although Russia, very much so.  But many of the smaller ones, and it’s, you know, this crazy, the crazy stuff that was going on on the eve of the crisis, a lot of it is only really catching our attention now, so I just been fascinated and horrified by the revelation that Hungary had a housing boom based on borrowing on Swiss francs, and, all of a sudden, carry trade has collapsed all around the world and Hungary is in trouble and they can’t cut interest rates, they can’t devalue the because they’ve got all these Swiss franc debt.  My God!  What were people thinking?  But this is the kind of thing that we are now faced with. 

Question: What about China?

Paul: The Chinese economy, [I’m tempted] to say, is inscrutable.  But, anyway, the, what I’m reading, and I’m just a consumer here, is that China had its own housing bubble, and so they’re having their own big problem domestically, on top of decline in exports because of the problems abroad.  So, all the buzz that’s coming is that China is in much worse shape than anyone would have thought was possible.