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Next decade to belong to Indian and Chinese consumers

business Updated: May 26, 2009 14:24 IST

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The next decade belongs to Indian and Chinese consumers, forecasts a new economic outlook report.

Further, the US will see the return of inflation and stocks and resource prices will boom as Asian consumers splurge in the next decade, says the new economic outlook report by Canadian Imperial Bank of Commerce (CIBC) in Toronto on Monday.

Calling the next decade 'the teenage years,' the report said that like teenagers, financial markets and the economy would be moody and unpredictable initially, but then grow and mature.

CIBC chief economist and report co-author Avery Shenfeld said: "The US, and perhaps to a lesser extent, Canada, will become a bit more China-like in the teen years. We will see more of a contribution from exports and related capital spending, and less from housing or consumption.''

Shenfeld expected greater consumer spending in regions, particularly China and oil-exporting countries, which ran "outsized savings rates over the past decade.''

A fall in the savings rate in the developing world could add far more to global consumption spending than will be lost in the adjustment to a higher savings rate in the US, and the developed world, the economist said.

The key driver in this, he said, will be a drop in the value of the over-inflated US dollar.

Expecting the US greenback to fall by 20 per cent, the Canadian economist said a weaker dollar will help unlock wallets overseas.

"Stronger currencies in East Asia and, if there is an un-pegging as we expect, in the Persian Gulf oil economies, will be one step towards improving the real purchasing power of consumers in these regions,'' he said.

"Moreover, the longer countries like China and India see improving economic conditions, the more households will be confident that their newfound wealth is not h ephemeral, allowing them to reduce precautionary savings,'' the Toronto banker added.

For the US, he said, a weaker dollar will be the key to promoting both exports and capital spending at home, by making "Made in America'' less of a cost disadvantage.

Ruling out tax hikes in the US to be the solution to the growing government debt, he said, "Letting inflation run at five per cent for a few years in the early part of the decade would go a long way to digging the US out of its debt mountain.

"Higher inflation would help stabilize or even boost house prices, key to allowing a return to positive home equity for those with mortgages that now threaten to exceed the house price.''