US growth at 11-year high, India wary

  • Yashwant Raj, Hindustan Times, Washington
  • Updated: Dec 24, 2014 01:26 IST

The US economy posted its strongest growth in more than a decade in the last quarter, bolstered by robust spending by consumers and businesses. And India will wait warily for the fallout.

Gross domestic product grew by 5% in the third quarter, said the US department of commerce. That was up from 4.6% in the second quarter, and the fastest since 2003.

“The strong GDP growth is consistent with a broad range of other indicators showing improvement in the labor market, increasing domestic energy security, and continued low health cost growth,” said Jason Furman, chairman of President Barack Obama’s council of economic advisers.

He added that 2014 has been the “strongest year for job growth since the 1990s”.

US economy has been growing at a decent clip since spring, after a sluggish first quarter. Unemployment is down — 300,000 hirings last month; and gas prices are at a long-time low.

If the growth is sustainable, the Fed—the US central bank--could raise short-term interest rates earlier than expected — likely around the middle of 2015, according to a recent projection.

An interest rate hike in the US could prompt foreign funds to move out of emerging markets such as India.

The resultant dollar outflow could weaken the rupee.

Besides, a falling rupee would have also made the RBI hesitant to cut rates to maintain India’s attractiveness as a “high-return” market among foreign funds.

Worse yet could be the impact of the American turnaround on crude prices.

Brent crude, an international marker of global oil prices, shot up at the first reports of the strong showing by the US economy, supporting expectations of greater demand for crude.

Crude prices have fallen nearly 50% from a high of $115 a barrel to less than $60 a barrel after OPEC, a cartel of oil exporting nations, said it will not cut production.

But if prices go up due to the American turnaround, India, which is completely dependent on imports, could suffer.

Experts are divided for the moment over the future course of Brent crude. Bank of America Merrill Lynch said it could go under $60 over the next six months.

Energy entrepreneur T Boone Pickens told CNBC that he sees crude around $90 and $100 over the next 12 or 18 months. “The world got along fine with $100 oil,” he added.

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