The China dragon is slowing down after a scorching pace of growth, Asia’s largest economy, is likely to find itself struggle to sustain this momentum. The dazzling growth in the Chinese economy in the past few years and the Olympics, which is being hosted in the country had bolstered demand for various metals and oil and was the chief catalyst in spurring the rally in commodities. But the ills afflicting economies across the world seem to be sapping the strength of this Asian behemoth as well. The signs are evident.
- Exports are growing at a snail’s pace as a direct result of the slowdown in the US and Europe and appreciation of the yuan against the dollar.
- New orders from factories are plunging, the housing market is weakening and inflation in the meanwhile is steadily moving northwards.
- Fierce snowstorms during the early part of the year, the earthquake and resultant floods have only compounded its woes.
The Chinese economy had been growing at a rate of 11% a year in the past and economists have now forecasted growth to taper off to around 9%-10% in the coming year or even downwards. Given that the developed world is already heading into a recession, a slowdown in China could further cast a pall of gloom on global growth. Metal prices for instance are already showing signs of cooling off. To put things into perspective, as per reports on Bloomberg, China's home-appliances makers, the world's largest exporters, are cutting purchases of copper as e xports of air conditioners and fridges slow.
What about the Indian(Elephant) economy?
Inflation does not seem to be sparing India either with the figure being just a hair’s breadth away from the 12% mark. As a result, the RBI effected a hike in the CRR as well as the repo rate to 9% each to rein in inflation. More important is the expected growth in the country’s GDP going forward. The Indian economy had been logging in robust growth rates of 9% and above in the past three years. This made the country attractive for many investors to pour money into and hugely contributed to the surge in the Indian stock markets. The tide seems to have turned now.
Given the high level of inflation and the increase in interest rates, replicating this kind growth in the coming year is likely to be a Herculean task. Indeed, the RBI itself has revised the GDP growth estimate for FY09 from the range of 8%-8.5% to just 8%. And the Indian stockmarkets have been on a downward spiral following the weakness in the global markets and the impending slowdown therein. Soaring oil prices have further played spoilsport.
The Economist states that despite the recent easing of crude prices globally, India still faces a crude import bill of US$ 120 bn this fiscal as compared to US$ 69 bn the year before. The oil and fertilizer subsidies, together with the farm loan waivers and the huge pay hikes to government employees is expected to put heavy burden on public finances. The Indian rupee, which had appreciated sharply against the dollar last year is already beginning to feel the heat and has depreciated considerably this year after some c racks have begun to appear in the Indian economy.
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