Deccan Chronicle

India to play key role in global growth

Commodity-exporting EMs will accelerate significan­tly

- DC CORRESPOND­ENT

Global investment bank Morgan Stanley said that the emerging market excluding China would be the largest contributo­r to the accelerati­on in global growth in 2017 and 2018 with India expected to play a key role in the process.

According to it, emerging markets are seeing a rebound in both external and internal demand after four years in the adjustment phase. While growth in EM commodity-importing countries will accelerate modestly, commoditye­xporting EMs will accelerate more significan­tly after painful adjustment in 2015-16.

“Our above-consensus forecast for emerging market excluding China (EMXC) in 2017-18 combined is largely driven by our more positive view on India. We think the demonetisa­tion impact on the Indian economy will fade quicker than expected and exports and investment growth will be more supportive,” Morgan Stanley said.

It expects India’s GDP growth to touch 7.6 per cent in 2017 and accelerate further to 7.8 per cent in 2018.

On the other hand, China’s growth is likely to drop to 6.4 per cent in 2017 and 6.2 per cent in 2018.

The most recent period characteri­sed by an EMXC-driven improvemen­t in global growth and improving macro stability was during the 2000s.

This will be the first time since 2000’s that a meaningful recovery in EMXC will lift global growth.

While most EMXCs have already made a significan­t correction to macro policies, driving a major improvemen­t in their macro-stability indicators, Morgan Stanley said they still need to stay on the path of gradual implementa­tion of the three key policy reforms — fiscal consolidat­ion, public infrastruc­ture spending and management of financial stability risks.

“India has already embarked on gradual fiscal consolidat­ion as the central government aims to cut the fiscal deficit to 3.2 per cent of GDP for FY18 from 3.5 per cent in FY17. For India, our base case assumes continued implementa­tion of infra projects,” it said.

Our above-consensus forecast for emerging market excluding China in 2017-18 combined is largely driven by our more positive view on India. — MORGAN STANLEY

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