The consequent rise in losses in the US-based funds resulted in panic and increased redemption pressure on international funds. With the underlying assets (read subprime loans) having become illiquid, redemptions had to be funded via the sale of liquid assets. This led to a sell-off in emerging markets
A more significant long-term impact of this could be the possibility of a slowdown in US consumption and the economy. The housing slowdown has already caused a dent in the home equity of US consumers. With higher oil prices looking a distinct possibility and declining real wages in the US, fears of a recession in the US economy have become real.
The latest US economic data hints at falling consumption of durable goods, residential investment in free fall, inventories on the increase and declining sales in the retail sector. The focus of the Fed is, therefore, shifting towards growth rather than inflation. So, there is a high likelihood of cut in interest rates in the US.
Against this backdrop, the India Growth Story acquires a much deeper meaning since India is one of the few nations whose growth is largely shielded form global upheavals, including that of the US.
Despite the US being our largest trading partner, the total contribution of the US trade in demand for Indian goods is around 1.7% of the GDP.
This implies that the high-paced growth seen in India since the past decade was sustained by internal demand. India Inc, which can expect to see demand-driven growth in the future. In short, future GDP growth seems to be intact.
Monday, September 3, 2007
Indian GDP growth seems to be intact
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