Multi-Speed Recovery seems to be the latest buzzword when it comes to describing the global economy — slow growth in the OECD countries and high growth in China and India. The latest news from the US, in terms of Q4 growth and creation of new jobs, is exceptionally good and will not sustain. But even allowing for the “inventory effect” to peter out in the next quarter, forecasts for US growth are the highest in the OECD. While stock markets are up and spreads down, bank lending has yet to pick up, partly due to the possibility of further write-downs. The problem, as Martin Wolf, the chief economics commentator of the Financial Times points out, is that should there be a dip in growth, the OECD countries have precious little firepower left, given how high their deficits already are.
In India, the recovery is firmly taking root, and exports have started growing, thanks to the global upturn — while global exports fell 12.8 per cent in 2009, the IMF projects they will grow 5.8 per cent in 2010. Industrial growth continues to rise, but with core sector growth slowing sharply in February, industrial growth will slow a bit. India Inc has made the most of a rising market and, in the past few months, bank credit has also started rising.
The strengthening rupee poses a challenge, but the more immediate problem is that of inflation. After being restricted to primary articles, inflation has spread to other sectors — in the latest period, manufactured goods contributed nearly 42 per cent to inflation while primary articles contributed around 38 per cent. In which case, further interest rate hikes are likely. The joker in the pack is the fiscal deficit since the government’s Budget has very low oil subsidy projections. The 3G/BWA auctions towards the end of the week will be eagerly watched since the government has estimated earnings of Rs 35,000 crore from here — experts are split between whether firms have the money to bid large amounts or not. It will also indicate the levels of “animal spirits” in the economy.
