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Growth may dip to 5% in ’09: EIU

business Updated: Mar 17, 2009 21:50 IST
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Uncertainty and decrease in income has hit private consumption in India badly and this in turn would show on the growth figure and market sentiments. Presenting a bleak picture of global meltdown, the Economist Conference said that the crisis is likely to continue in 2010.

“Growth in India will fall sharply to around 5 per cent in 2009 and recover to 6 per cent in 2010. Fiscal balance blown off course due to down turn position looks worrying,” said Anjalika Bardalai, senior editor and economist of Economist Intelligence Unit (EIU) said. She predicted further fall in stock markets.

Despite these problems, the outlook for India is good in the medium-term though not so much in small-term. “Only the government spending will mitigate the slowdown. If the government applies pressure on banks to pass on rate cut benefits to borrowers, it would do the trick,” said Bardalai. She suggested further rate reduction by the central bank, of around 50 basis points, in the near future.

Speaking on outbound mergers and acquisitions from India, Jehil Thakkar, executive director of KPMG said, “The numbers have come down from $10 billion in 2006 to $13 million in 2008.” Though there is active evaluation, financing is an issue that Indian companies face when going in for acquisitions.

The global situation is bleaker than that of India. “Most of the CEOs surveyed are finding it hard to manage working capital. Keeping the moral up among employees is also a problem for them,” said Christopher Doyle, country manager-India, of EIU. A survey by Economist Intelligence Unit said that most CEOs across the globe, including India, see slowdown stretching up to 2010 and double-digit earning decline during the period.

“Out of 30 emerging markets, 18 are likely to contract in coming years and Asian economy will face contraction in 2009 end,” said Jan Friederich, director Global Forecasting, Asia, EIU. He said that over-leveraging of US business is a bigger story than the housing slump. Predicting a slight positive for the US in June quarter of 2009, Jan said that US would see around 0.7 per cent growth in 2010.

David Paterson of Herbert Smith said that protectionism is being adopted by nations who once propagated free trade. The impact of the move will start getting visible in 12-18 months. “Even in these countries, there is internal resistance being seen against protectionism,” said Doyle.