Maybe De-Coupling Isn’t Dead
It seems hard to believe that anyone is still looking forward to growth. But some of the recent news out of Davos suggests there’s optimism still around–though it is of a very particular sort. The Chinese are claiming that a combination of consumer handouts and some additional stimulus can get their growth rate back up to 8%. If 6.8% is their idea of an economy in need of stimulus, it’s hard to imagine that they would or could be happy with 8%, or whatever the real number is that they’re calling 8%.
Meanwhile, in India, there’s something bordering on confidence. Here’s Kenneth Rogoff of Harvard writing on Dealbook’s Davos Blog:
But the real reason my Indian companions were so cheerful was a strong sense of relief that they were living far from the epicenter of the recession, insulated by their country’s size and still-comparatively stringent restrictions on international capital flows. “Thank heavens for the strong regulatory framework we have in our financial system,” one leading provider of soft consumer goods said.
Of course, many outside commentators view India’s financial regulation as repressive, effectively forcing banks to hold massive quantities of government debt. Of course, given how many of the United States financial institutions are doing that voluntarily right now, and that the U.S. public-debt-to-GDP ratio may rival India’s in a few years (according to Reinhart and Rogoff’s research), there are fewer critiques coming from abroad right now.
Walking around the room and polling quite a few people, I came up with a “Davos India dinner consensus” forecast of 6 percent to 7 percent for India’s 2009 growth, a remarkable figure in a year where the most developed countries are expected to have negative growth, and where world growth will struggle to reach 1 percent.
My own guess is that despite the fact the fact that India is relatively closed, things won’t be quite that good, and a growth rate of 4 percent 5 percent is more realistic. Everyone agreed that direct foreign investment into India had slowed dramatically, removing a key source of equity capital in the Indian economy.
Source:
Wen Looks at Fresh Chinese Stimulus
By Lionel Barber, James Kynge and Geoff Dyer in London
Financial Times; February 1, 2009
http://www.ft.com/cms/s/0/c3959018-f092-11dd-972c-0000779fd2ac.html
Rogoff: The Exhuberance of India
KENNETH S. ROGOFF
Dealbook; January 31, 2009
http://dealbook.blogs.nytimes.com/2009/01/31/rogoff-the-exuberance-of-india/
February 2nd, 2009 at 2:30 am
Whistling past the graveyard.
February 2nd, 2009 at 12:43 pm
In other words “we’ve mismanaged our country so badly leading up to this that at least we don’t have any benefits to lose.”
February 2nd, 2009 at 7:52 pm
Rogoff is just what India needs. Repressive regulations, who put a quarter in this dude.
February 2nd, 2009 at 11:29 pm
Growing up in India, this was very true. I do not remember any bull or bear market. Any huge growth or any huge downturn. My father never got laid off and on the other hand, he did not make huge bonuses either. The rich were always very rich and poor remained poor. We were in the “middle class” where we had everything we needed but not much of what we “wanted.” There was no competition. Same shoddy cars. Long waits for telephone line, first back and white TV etc.
Since 1990, this has changed and this is the first time India is facing a “bear” market after opening up to the rest of the world. I hope it is not as bad as here in the US. Folks there are not used to being “let go” at a drop of a hat.
Though I am not sure of the “strong regulatory framework” that exists in India. And Satyam is a good example of what Indian system is not. If anyone tells you better that the politicians and bureaucrats are less dishonest in India than here then you can assume that they have never done any business in India.