World Economy On A Recovery Path – Part IV

Emerging Asia

The recovery is very much underway in this region with growth impetus being provided by the fiscal stimuli and accommodative monetary policy. Unemployment is on decline in this region with inflation gradually moving into the positive territory though in the majority of economies it is still negative.

China in particular had a wonderful quarter with the real GDP growing by 8.9% in the third quarter of 2009. Overall in the current year GDP in china has grown by 7.7% year on year. Growth has mainly been driven by fiscal stimulus as can be seen from the 7.3% contribution of stimulus driven fixed investment to annual GDP growth in the first three quarters of 2009. The positive consumer sentiment was evident from a robust 4% contribution from consumption to GDP growth in the first three quarters of 2009. Trade surplus though still at high level however continued to decline in September owing to weak exports. The central bank continued with its easy monetary policy. Deflation seems to have bottomed out with inflation becoming positive in September. Annual inflation year to date September reached -0.8% up from -1.2% in August.  The government has targeted 8% growth rate for the economy in 2009.

The government had announced a huge stimulus package of $585-billion and $1.27 trillion in bank lending this year to get the economy roaring. With the economy firmly on a growth path and manufacturing data for October showing i.mprovement and increasing export orders the government may tighten its monetary policy from second quarter of next year.

Recovery in the other big economic power in the region India has begun earlier than expected with revival of domestic activity already fanning inflationary pressures. Also less than normal seasonal monsoons have increased the inflationary pressures in the country. In September 2009 as per data from department of statistics inflation was 11.6% year on year vis-a-vis 11.7% in August. In light of high inflation the reserve bank of India has signalled an end to the easy monetary policy with the possibility of rates being increased in 2010.

The country is in particular looking at strengthening its infrastructure base. Currently infrastructure investment constitutes only 5% of GDP with government planning to increase it to 9% of GDP by 2014.  In September the infrastructure index in India increased by 4% year on year much in line with government’s objective to increase investment in infrastructure.

Latin America

In this part of world growth still has not picked up momentum. Industrial production in Brazil declined at an annual rate of 7.8% in September after registering a decline of 7.2% in August. Inflation at 4.2% in September was 0.1% lower than in August.  Economic activity is showing signs of revival in Argentina. Industrial production in the country was unchanged in September year on year after a decline of 1.4% in August.

Russia

The Russian economy is also showing some signs of revival in the third quarter. As per preliminary estimates GDP in the third quarter was 9.4% lower than a year before which is definitely an improvement from 10.9% contraction in the second quarter. GDP grew by 0.6% in the third quarter from the second quarter. Overall Russian GDP is on a growth trend month on month from June 2009. In September industrial production increased by 5.1% from August as against a month on month contraction of 3% in August. Year to date industrial production has declined by 9.5%.

The Russian economy has been hardly hit by the current financial crisis due to its heavy dependence on export of energy and raw materials whose prices have heavily fluctuated. The Russian central bank in its meeting on 30 October decided to cut its key lending rate by 0.5 percentage point to 9.5% per annum. This move will further ease the monetary policy hopefully providing impetus to the economy.

Read more at: World Economy On A Recovery Path – Part III