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Strong economic growth in India predicted for first quarter

29th August, 2010

Despite the government’s rollback of various stimulus measures, many economists are forecasting the Indian economy to grow by between 8.9 per cent and 9.4 per cent for the first quarter of the new fiscal year; almost matching the growth rates achieved three years ago. The Indian economy already expanded by 8.6 per cent during the March quarter of 2010 – the second fastest growth rate in the world, surpassed only by China’s 11.9 per cent growth rate over the same period. Nevertheless, the forecast is significantly higher than India’s slower pace of just 6 per cent over the same period last year. In particular, growth is expected to be driven by India’s strong industrial and manufacturing sector, complemented by a smaller extent by India’s levels of agricultural growth. During and after the global financial crisis, the relative resilience of India’s economy has been considered an integral part in leading global economic recovery, along with China.

US Federal Reserve prepared to take further action

28th August, 2010

The Chairman of the US Federal Reserve – Ben Bernanke – has reassured investors and policymakers that the central bank still has effective tools at its disposal to stimulate the US economy further, despite already having dropped interest rates to their lowest possible levels of 0-0.25 per cent while purchasing $1.7 trillion of US Treasury bonds and housing debt. Additional tools available, according to Bernanke, include further purchases of US government securities and a reduction in the interest rate it pays on banks’ excess reserves. In recent weeks and months, a slew of sluggish information regarding employment and manufacturing in the US economy has raised fears of a double-dip recession. Indeed, a day before Bernanke’s comments, second quarter growth estimates for the US economy were revised lower by the Commerce department from 2.4 per cent initially to 1.6 per cent.

Greece’s recession milder the earlier forecast

26th August, 2010

According to Greece’s Finance Minister, George Papaconstantinou, Greece’s recession will be milder than initially expected; the economy is now expected to shrink by less than the earlier forecast of 4 per cent over the year. Nevertheless, a key survey has recently indicated that eight out of every ten Greek businesses have witnessed deterioration in their financial positions during the first six months of the year. Greece narrowly escaped defaulting on its international debt obligations in May earlier this year after an assistance package put together by the International Monetary Fund (IMF) and the European Union (EU) valued at $140 billion began its first round of dissemination. In return for the financial assistance, Greece’s government agreed to strict austerity measures aimed at reducing the budget deficit from 13.6 per cent of GDP last year to below the EU’s limit of 3 per cent by 2014. Austerity measures include cutting the pay of government workers, reducing pension allowances and increasing consumer and income taxes. However, these measures have sparked violent protest in Greece and remain highly controversial.

India and Japan likely to seal trade pact in 2010

26th August, 2010

According to India’s Commerce Secretary, Rahul Khullar, India and Japan are likely to sign a bilateral trade pact in October 2010 as part of efforts to increase trade between the two nations. Presently, trade between the two is already $10.4 billion. The two countries have been negotiating a Comprehensive Economic Partnership Agreement (CEPA); a pseudonym for a free trade agreement (FTA) between the two countries. If signed, the free trade agreement will eliminate or substantially reduce tariffs on as many as 9,000 products, ranging from steel to drugs. Already, India has signed a similar trade pact with the Association of South East Asian Nations (ASEAN) covering goods. Presently, India and ASEAN have been negotiating the extension of this trade pact to include services and investment: widely seen as crucial given that services account for roughly 55 per cent of India’s overall gross domestic product (GDP).

India’s economy continues strong performance

15th August, 2010

The Indian economy has continued its relatively strong run of economic growth due to a resurgence of demand in the domestic and international market. Overall industrial output increased by 11.5 per cent in May, which represents double digit growth for eight consecutive months. GDP growth over the final quarter of 2009-10 was 8.6 per cent, compared to a smaller 5.8 per cent during the same period last year. The government has predicted GDP growth of 8.5 per cent in 2010-11 and 9 per cent in 2011-12. However, some have voiced concern that the growth recorded has been uneven. In particular, sluggish performance in India’s agricultural sector for the second successive year has raised some concerns. Furthermore, like many other emerging markets, India’s strong growth has also prompted inflationary pressures stretching from food prices to the cost of labour in India’s manufacturing industry. Nevertheless, the Reserve Bank of India (RBI) has projected for headline inflation to fall to 5.5 per cent by March 2011, and has begun preliminary steps to hike interest rates.

Germany’s economy expands at record pace

13th August, 2010

During the year’s second quarter, the German economy – the largest economy in the European Union (EU) – grew at its fastest pace since the country’s reunification over two decades ago. Germany’s Gross Domestic Product (GDP) increased by 2.2 per cent; a significant increase from economists’ expectations of 1.3 per cent. On annualised terms, this means that the German economy expanded by roughly 9 per cent, placing it in the pantheon of emerging markets such as China and India. The positive result is driven by a general recovery in global demand and the euro’s 10 per cent decline against the dollar, which has boosted the international competitiveness of Germany’s export industries. Germany’s growth helped to drive total EU growth to 1 per cent, which is its fastest level of growth in four years. Germany accounts for roughly one quarter of the EU’s economy and accounted for approximately two-thirds of the region’s second quarter growth. The positive result is especially welcome news given the recent skittishness of European financial markets due to Greece’s debt crisis and only modest growth reports from other European countries – France’s economy expanded by 0.6 per cent, Italy’s by 0.4 per cent, Spain’s by 0.2 per cent while Greece suffered a 1.5 per cent contraction. Furthermore, efforts by European governments to cut spending and therefore rein in large budget deficits may threaten growth in the coming months.

US economy facing grim conditions once more

13th August, 2010

More bleak news regarding the state of the US labour market has heightened fears that the US may slide into a ‘double-dip’ recession. The number of American citizens applying for Federal unemployment benefits has increased to its highest level in six months, with 484,000 former employees applying for help during last week alone. This marked the second consecutive week in which applications for unemployment benefits exceeded 480,000. Additionally, banks have been foreclosing on mortgaged homes at nearly record levels, taking over almost 93,000 properties in July. Resultantly, a poll released by the Wall Street Journal has indicated that almost two-thirds of Americans believe the economy will get worse before it improves. A consensus amongst many commentators is that US households and businesses have been cautious about spending and investment due to the uncertainty of the US recovery, and have thus decided to save rather than spend. The result of this has been only sluggish recovery in aggregate demand.

Brazil experiences strong economic resurgence

12th August, 2010

In recent months, Brazil’s economy has experienced significant growth after officially emerging from recession during 2009. Indeed, during the first quarter of 2010, Brazil’s economy grew by a substantial 9 per cent, according to the central government. According to the International Monetary Fund (IMF), Brazil’s relatively successful weathering of the global financial crisis was due to fiscal responsibility, exchange rate flexibility and the strength of its domestic financial system. However, like other emerging markets, stronger growth levels have raised fears of inflationary pressures. Brazil’s central bank had already raised official interest rates by 2 per cent over the course of 2010. Many commentators expect the rate to increase even further and to possibly reach 11.75 per cent by 2010’s end. Overall, the IMF predicts that Brazil’s real GDP will increase by 7.1 per cent in 2010, compared to its minor decline of 0.2 per cent in 2009.

RBA Predicts 3 per cent growth for Australia

6th August, 2010

The Reserve Bank has predicted growth of 3 per cent for the Australian economy for the year to June 2010, with growth expected to increase to 3.75 per cent by June 2011. Additionally, they have predicted that Australia’s level of headline inflation – measured by the Consumer Price Index (CPI) – will hit 3.1 per cent for June 2010 but reach 3.25 per cent by June 2011. Underlying inflation, however, is expected to be noticeably softer and arrive at 2.75 per cent by the end of 2010 and remain there until June 2012. The Reserve Bank also expects Australia’s terms of trade to remain at historically high levels, driven by strong demand for Australia’s commodities and mineral exports from developing giants such as China and India. However, the Reserve Bank has also warned of downside risks to the Australian economy, including the uncertainty of some investment projects in the mining industry and continued instability in European financial markets. As per usual, the Reserve Bank confirmed that much of Australia’s growth depends on the trajectory of the mining industry.

Rio Tinto’s profits increase by 125 per cent

5th August, 2010

Continued economic strength in China has helped Australia’s mining industry to obtain record profits, including Rio Tinto who has recently reported a 125 per cent profit increase for the first half of 2010. Specifically, China’s demand for iron ore has driven this outcome, as around 75 per cent of Rio Tinto’s profit for the year has been driven by iron ore sales. Iron ore, as the key ingredient for steel, is indispensable to China’s construction of new infrastructure. However, many have expected China’s demand for iron ore to slow over the second half of 2010 as China implements measures to cool down an overheating economy. In addition to China, India has also become a key consumer of copper, aluminium and coking coal – all of which are metals and raw materials that Rio Tinto produces in significant quantity.

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