He Called The Bust.(International Edition; WORLD AFFAIRS)(Jim Walker)(Interview)

Byline: George Wehrfritz

An interview with Jim Walker, who predicted China's slump long before the crisis hit.

Apocalyptic forecasts are a dime a dozen these days. Yet Jim Walker--former chief economist for the brokerage CLSA and now head of the research firm Asianomics--started getting his dark visions two years ago. That's when he first warned that a global recession would end China's 30-year boom. A year later, he forecast that China's growth rate would slow to 5 percent by the end of '08, down from a white-hot 11.9 percent last year. It sounded radical then, but in recent weeks, JPMorgan, Credit Suisse and the Royal Bank of Scotland all released similar estimates. Walker spoke with NEWSWEEK'S George Wehrfritz in Hong Kong last week. Excerpts:

WEHRFRITZ: Back in 2006, you prided yourself in being "unfashionably negative" on the global economy. What did you see that other analysts missed?

WALKER: The key thing was the U.S. housing market. By late 2006, we were seeing significant downturns in residential investment [and] a drop-off in the way that it was financed, and we knew that problems were building. And the yield curve had inverted [making long-term debt cheaper than short-term debt]. Putting this together, we [concluded] that we were headed into a recession, and that it was going to be a pretty nasty one.

The implication for Asia being--

That because it's still heavily export-dependent, and because the real global consumer remained the United States, anything that was going to [reduce] demand in America would affect Asia pretty badly.