Saturday, February 13, 2016

'World economy to grow this year'; Japan's 'Abenomics' on the ropes; Time to change tired image of India

1 Global economy to grow this year (Muzaffar Rizvi in Khaleej Times) The global economy will continue to grow at a steady pace in 2016 and there is no need to worry about falling oil prices, volatile Chinese market and a collapse in the stocks and bonds of commodity-producing emerging nations, says an expert. 

The global strategist of Societe Generale's private banking arm Xavier Denis said low oil prices will continue to give a boost to US consumers. However, consumer price index is expected to rise as wage pressures begin to emerge in the US and the impact of the slump in energy prices fades. 

He said private consumption remains robust and should be the main driver of US growth in coming quarters. Denis said world trade continues to slow. Global trade growth has been anchored below its historical average since the 'great recession', offering further evidence of tepid world economic recovery.

He said low commodity prices should continue to weigh on inflation, and central bank monetary policy should remain accommodative overall. To a question about 'recession fear' this year, he said it is unlikely that 2016 is a repetition of 2008 crisis as most of the legacy of the financial crisis has been addressed by policymaking, cleaning up of banks' balance sheets and household balance sheets.

About the eurozone, he said single currency bloc has begun to recover from the slowdown in late 2014, helped by the weaker euro, lower energy prices and less fiscal tightening - we anticipate real GDP growth around 1.6 per cent in 2016. With banks easing credit standards, lending activity is finally showing signs of recovery. Lending to the private sector is edging further up.

Denis said zero interest policies in the developed world have bolstered debt issuance from emerging markets corporates. "India, currently our top pick within emerging markets, should be driven by ambitious economic plans, strong profit outlook and accommodative monetary policies," Denis said.

2 Japan’s ‘Abenomics’ on the ropes (Straits Times) Japan's bid to revive its once-soaring economy is on the ropes as an equity market bloodbath and resurgent yen threaten to knock Prime Minister Shinzo Abe's growth plan to the canvas.

Mr Abe met with his hand-picked central bank chief Haruhiko Kuroda for an emergency meeting on Friday (Feb 12) amid huge volatility on global markets, which is wiping out the gains Abenomics has achieved since the premier swept to power in late 2012.

All eyes will be on Japan's fourth-quarter GDP data on Monday, with many economists expecting a contraction of about 0.7 per cent in the world's No. 3 economy. That could deal a near fatal blow to Mr Abe's easy money policies, which he hailed as the answer to beating the deflation blamed for holding back growth in the fast-ageing nation, analysts warned.

"The risk is not that Japan faces an imminent financial crisis or that the Abe administration could collapse, but rather that the government's economic programme simply fails to achieve its goals," said Mr Tobias Harris, political risk analyst at consultancy Teneo. That would leave "Japan no more capable of reckoning with the implications of demographic decline than before Abe took power".

Mr Abe's plan - big government spending, central bank monetary easing and reforms to the highly regulated economy - appeared to bear fruit at first. The yen weakened sharply, which boosted Japanese exporters' profits and sparked a huge stock market rally that bolstered Mr Abe's claim that "Japan is back".

But sustained growth in the economy has been elusive and Mr Abe's efforts to overhaul the economy have been widely criticised as half-hearted. "(The plan) actually worked, but now it is moving in reverse," said Mr Takuji Okubo, director of Japan Macro Advisors in Tokyo.

3 Time to update tired image of India (Jason Burke in The Guardian) New figures released by Indian authorities last week put economic growth in the emerging power at 7.5% in 2015, the highest in the world, and up from 6.9% the year before. Growth in China is heading in the opposite direction – predicted to be only 6.3% in 2016 – while the US will expand by a mere 2.6%.

So, after several disappointing years, the elephant has once again begun to dance. And, in a world shaken by a series of rolling crises, anything remotely cheerful gets noticed. India’s economy is the 10th or 11th biggest in the world and is forecast to reach third, after the US and China, in less than 15 years.

This leads to two important questions: is India’s rise, which looked to be slowing, really back on track? And if so, what will India’s eventual emergence as a major economic power actually mean? The answers to both challenge many of the easy assumptions often made in the west.

To dismiss the rise of India would be wrong. Whatever the doubts, it is difficult to deny the huge wealth generated over the past 30 years, and the powerful motors of urbanisation and aspiration. It is likely that the coming years will see more of the same.

So what does this mean for the rest of the world? So far India has not converted its new-found wealth into commensurate global clout. This vast nation has always punched below its weight on the international stage, other than perhaps during the 1950s, when Jawaharlal Nehru, the independence leader and prime minister, converted moral prestige into influence.

This lack of power projection also means India is badly misunderstood. The image of the US overseas incorporates hard elements (a willingness to use military force or to impose trade agreements favouring US businesses) with softer elements (film and TV, music, hamburgers).

One of the consequences of India’s profound lack of hard power is that its image is defined almost entirely by soft elements: Bollywood, Mahatma Gandhi, curry, films such as the Last Best Marigold Hotel or Slumdog Millionaire, and the country’s reputation as a global information technology hub. This distorts the reality.

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