Ernst & Young Rapid Growth Markets Forecast (RGMF)
- India Real GDP growth at 7.2% for Calendar Year (CY)2011
- India to lead with 9.5% Real GDP growth in Calendar Year (CY) 2013
- Eurozone impact will be relatively modest on India, Ernst & Young
Mumbai, 24 October 2011 –– India and China are expected to be relatively less impacted among the 25 Rapid Growth Markets(RGMs) in case of a deterioration of the Eurozone debt crisis , according to Ernst & Young's first Rapid Growth Markets forecast (Autumn 2011) released today. The forecast from Ernst & Young's Emerging Markets Centre is based on the Oxford Economics Growth Model and offers insight on macroeconomic trends across 25 fast-growing markets, who are challenging the more advanced economies. It attributes India and China's ability to better withstand a likely slowdown to the large size of their domestic markets and the beneficial effects of lower oil and commodity prices.
The forecast pegs India's real GDP growth rate to be the highest among all the RGMs starting in CY2013, when the economy is expected to growth 9.5%, followed by China at 9%. In 2014, India is expected to grow at 9% and China at 8.6%. In the current year, i.e. CY2011 though, the Indian economy is expected to slow down to 7.2% from 8.2% achieved in CY2010. A modest recovery to 8% is expected in CY2012.
"While the overall outlook for India is positive, the country will need to address rising inflation which rose to 10.9% in August 2011" says the forecast. It adds, "Provided India's inflation does start to fall back by the end of this year, and the US and EU economies do not slip back into recession, the "soft patch" for Indian growth should be relatively short-lived. Once inflation is in check, and interest rates are no longer rising, consumers will be more willing to spend, supporting a general improvement in the business environment, with growth steadily accelerating during 2012".
India enjoys an advantage in its high savings and investment rates, currently a third of GDP; a relatively low GDP per capita on purchasing power parity giving significant potential for growth and continuing industrialization and urbanization.
Says Farokh Balsara, Partner & India Markets Leader, Ernst & Young India, "India's consumption-led economy continues to make the country a highly attractive investment destination in the short to medium term. Its domestic demand-driven growth model has helped the country weather the volatility in the global markets, providing significant growth opportunities to businesses."
Outlook for Rapid Growth Markets (RGMs)
The RGMs are expected to grow collectively by 6.2% this year, almost four times more than the growth expected in the Eurozone. While the overall outlook for the RGMs is positive, these economies also have to deal with a number of challenges including avoiding inflationary pressures arising from overheating; managing the impact of capital inflows on the competitiveness of their manufacturing industries and ensuring that their infrastructure (physical and human) is sufficient to support their long-term growth potential.
In the case of a disorderly Eurozone debt crisis that leads to a prolonged recession in the Eurozone and a stagnation of growth in the US in 2012-13, RGMF believes that GDP growth would be cut to 3.2% across the RGMs in 2013, much lower than the 6.2% which is currently expected.
Among the RGMs, Eastern Europeans would be hit through their links with their neighbors. But oil and commodity exporters such as Russia, Brazil and Chile would also be severely impacted as the value of their principal exports are hit by lower prices as well as weaker demand. Those with greater trade and financial linkages such as Korea and Singapore would also be heavily hit. But RGMF expects countries such as China and India to be more modestly affected, partly reflecting the large size of their domestic markets and the beneficial effects of lower oil and commodity prices.
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About the Rapid Growth Markets Forecast
The quarterly Ernst & Young Rapid Growth Markets Forecast is a macroeconomic forecast co-produced with Oxford Economics and based on Oxford Economics' Global Econometric Model. It aims to fulfil the need for practical and accessible economic forecasts and insights on the development in a list of 25 rapid growth countries around the world, selected on three key criteria – they should be large, both in terms of GDF and demographics, they should be dynamic, rapidly growing countries and of strategic importance for business development. Our forecast is based on Oxford Economics' Global Econometric Model and provides analysis of the implications for corporations doing business in rapid growth markets and gives recommendations for decision-makers. Follow the development by tuning in to our quarterly webcast debate and by visiting www.ey.com/rapidgrowth