Emerging economies, including India, are set to return to sustained growth trajectory by 2011 on growing domestic demand even as the downturn in the developed economies is likely to continue for the next several years, a report has said.
Deutsche Bank Research in a report said that the downturn in the emerging markets (EMs) would be short-lived compared to the developed economies and "a rapid return to sustained growth in many, if not all, EMs is likely by 2011".
"Thanks to solid economic fundamentals, the EM-6 (Brazil, China, India, Korea, Mexico, Russia) have been (or will be) able to engineer a more or less rapid recovery by boosting domestic demand," the report added.
However, the economic growth in the developed economies would likely be anaemic for several years to come due to continued de-leveraging in the household and banking sector.
Sustained growth momentum for emerging economies in these tough times is because of factors like limited dependence on foreign capital flows, a large interest-rate differential as against developed markets and a capacity to limit the risk of significant currency depreciation and inflation.
"The EM-6 banking sectors remain, for the most part, sufficiently well capitalised to support an increase in credit growth. Lower interest rates therefore by and large remain an effective tool to support domestic credit growth and investment," DB Research added.
However, none of the EM-6 would be able to fully offset the permanent decline in external demand growth.
"Due to permanently weaker global demand and hence weaker export growth, EMs will not match the above-average growth rates seen over the past few years," the report said, adding that even if global financial conditions return to pre-crisis levels, EM-6 economic growth would remain below its pre-crisis levels.
The report also noted that the domestic demand-led growth in the EM-6 would not pull the world economy out of the doldrums.
"However fast demand in the EM-6 grows, it will remain small in comparison to G-7 demand for the foreseeable future and will therefore have only a limited effect on G-7 net exports and economic growth," the Deutsche Bank report said.
The International Monetary Fund recently raised India's growth forecast to 5.4 per cent for 2009 even as it projected the world economy to shrink by 1.4 per cent this year. China would expand by 7.5 per cent during the same period.
According to the multilateral lending agency, growth projections in emerging Asia have been revised upward to 5.5 per cent in 2009 and 7 per cent in 2010.
