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Rediff.com  » Business » Crisis? India, China not to shrink, says BNP Paribas

Crisis? India, China not to shrink, says BNP Paribas

Last updated on: June 12, 2009 16:25 IST

India and China will be able to sidestep contraction in their growth rates this year despite the ongoing global economic turmoil, which is the deepest since the second world war, global financial services firm BNP Paribas said.

"Only a few economies -- China, India, non-oil-exporting West Asian countries and Africa -- will avoid a contraction in GDP in 2009," BNP Paribas said.

The recovery in the emerging markets can be attributed to the fiscal measures taken by their respective governments, which would help them to post positive growth next year, the report said.

Amid this global recession, the longest and deepest since the Second World War, the world economy is expected to contract 1.3 per cent and advanced economies would see a contraction of as much as 3.8 per cent.

Except emerging countries, Africa and developing Asia, all the other major economies are likely to witness a contraction, the report said.

Prime Minister Manmohan Singh has said that the country's economy is now capable of growing 8-9 per cent, the same rate of growth before the global financial meltdown set in.

"Since our savings rate is as high as 35 per cent . . . If all work together, we can achieve a growth rate of 8 to 9 per cent, even if the world economy does not improve," he had said.

The global crisis had affected India's economic growth, which slipped from 9 per cent to 6.7 per cent in the previous fiscal, and the fall in growth is mainly due to dip in investments.

The report further said that there are some visible signs in the past few months that the pace of the contraction in economic activity is slowing down, a phenomenon being referred as 'green shoots of recovery'.

"Positive growth is set to reappear a few quarters down the road. Several factors are pushing in this direction. The headwinds are losing their strength," BNP Paribas said.

The reason behind these signs of recovery is largely due to the measures taken by governments and monetary authorities. Besides, financial conditions have also eased somewhat after a period of extreme turmoil.

However, these are only early signs of recovery and it will take some time to return to the growth rate that prevailed prior to this recession, as household demand would no longer be sustained by a fresh wave of debt.

Secondly, the effects of fiscal stimulus are set to cool and the prospects of a modest increase in demand also do not bode well for a brisk recovery in investment, BNP Paribas added.

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