Forecast to be a challenging, yet rewarding year
Forecast to be a challenging, yet rewarding year
The world looks a bit different from what it was, a year ago. As evident from the chart below, the once red-faced' world economy, is now starting to show green shoots'. The green pastures in the Emerging Market Economies (EME) give hope for a better 2011 not just for Asia, but for Advanced Economies as well, which still look pale. So what does 2011 has in store, for Asia, and in particular for India. Will 2011 be a step forward from where we left in 2010 or will it bring back the gloom of 2008. Let's begin by what global think-tanks have to say about Asia and India.
Asia - Prospects for 2011
The Asia Macro and Strategy outlook' released by Citi this December highlights that investment will be the Key driver to Asia's growth, which will be partly cyclical, on the back of some industrial sectors operating close to full capacity, and partly structural (e.g. infrastructure). Investment will be further supported by abundant liquidity/ low cost of capital, adds Citi.
Inflation will prompt further monetary tightening & property curbs. As per Citi, Inflation will be pushed by both supply and demand-driven pressures. Asian Central Banks will hike an average of 75 bps in 2011F and/ or pursue liquidity tightening measures according to Citi and are widely expected to target regulatory measures to curb property in 2011, especially in China, Hong Kong, Singapore, and possibly, in Malaysia. Commodity inflation too is expected to remain elevated, especially on the back on QEII.
The threats are equally bigger considering high dependence of some Asian economies on China. If China were to slow down more than expected, more externally dependent countries like Singapore, Taiwan, Korea, Malaysia and Thailand with relatively high shares of export to China/ HK will be more vulnerable than others. Another possible threat is inflation overheating' if monetary conditions are kept loose for too long. Citi thinks the risk is relatively higher in China and Indonesia China's monetary conditions are the most loose, though policymakers are now tightening.
India Growth to remain robust
India enters 2011 on a strong footing and economists are gung ho about this pace to continue in 2011 and 2012. Citi expects FY11 GDP to come in at 8.4% YoY and rise further to 8.6% YoY in FY12 on the back of the upturn in agriculture following the previous year's drought as well as continued buoyancy in industry and services. Whereas, Goldman Sachs has pegged GDP growth at 8.7% in FY12, 8.3% in FY13 and 8.5% for the current financial, driven by infrastructure-led investment demand.
Goldman Sachs in a note has highlighted private consumption demand to increase on the back of favorable agricultural crop resulting in raising incomes, optimism about future earnings, and continuing expansion from a low base. Despite a small reduction in government spending, the overall consumption growth is forecast to be higher in FY12 than in FY11.
On the investment side, Citi feels, upturn would likely be supported by the government's thrust on infrastructure, which is expected to double to Rs 40 trillion during the 12th Plan period (FY13-17) from Rs 20 trillion in the current plan (FY08-12).
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