Economy to slow down in near term: JM Morgan

Dried up liquidity, interest rate hikes and the resultant slump in consumption may slow down economic growth in the near term, according to the JM Morgan Stanley report for November 2005.

"We believe that fed rates and concerns on potential inflationary pressure, credit failure risks and asset bubbles will ensure a continued tightening in monetary policy over the next 12 months. This, we believe, will weigh on domestic consumption growth. The good news is that the investment cycle will improve supporting growth, but some pull back is inevitable in the near term," the report said.

"India has been living on debt more than any other non-Japan Asian country or even the US," says the report. "This is reflected in the growth in consumer goods segment of industrial production that recorded a ten-year high during the 2004-05 period. A sharp rise in debt as a per cent of GDP is supposed to have shot up consumption and, in turn, growth. With the central bank making money more dearer, consumption levels are expected to fall."

One of the major concerns, the report said, is the slower-than-expected growth in investments. "Though announced and proposed capital expenditure as a percentage of GDP has shot up sharply, capex under implementation is barely growing at the nominal GDP growth rate," the report added.