Tag: GDP

RBI says investment activity, capital goods production boosts FY 19 GDP estimates

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The gross domestic product (GDP) growth estimates for fiscal year 2018-19 was raised to 6.6%, compared to the earlier estimate of 6.5%, the RBI said in its first bi-monthly Monetary Policy Statement for 2018-19.

The gross domestic product (GDP) is a key indicator to measure a nation’s economy.

GDP measures the contribution of various sectors in an economy and provides a monetary value for the amount of goods and services produced over a particular period of time.

Capital goods production registered a 19-month high growth in January 2018, indicating a slowdown in investment demand.

Net exports were dragged down by Goods and Services Tax (GST) related working capital disruptions.

Merchandise import growth also weakened because of gold imports, and due to a weak external demand.

In the agriculture sector, the total food grain production for 2017-18 is expected to be 277.5 million tons, up about 0.9% from the previous year.

The manufacturing sector improved and remained in an expansionary mode for the eighth consecutive month in March, driven by increasing output and new orders.

In the services sector, growth of value added services surged, driven by trade, hotels, transport, communication and a significant uptick in construction activity.

Increased sales of commercial vehicles, tractors and two-wheelers, a strong upturn in production of consumer durables, rise in domestic and international air passenger traffic, also contributed to a significant rise in the GDP, the report said.

On the growth outlook front, RBI said that it expects GDP to strengthen from 6.6% in 2017-18 to 7.4% in 2018-19 due to sustained expansion of capital goods production and an increase in imports.

GDP growth for the first half is expected to be in the range of 7.3-7.4%  and 7.3-7.6% for the second half of the financial year.

Exports are also expected to rise due to higher global demand, and boost fresh investment.

In a poll conducted by CNBC-TV18, 10% of the respondents had expected RBI to cut its FY18 GDP forecast to lower than 6.5%, while 90% expected RBI to keep FY18 forecast unchanged at 6.6%.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India GDP growth moving towards 7.5-7.7%; RBI unlikely to hike rates in H1: Morgan Stanley

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As fears of a global trade war spook economies around the world, steel prices have taken a beating. However, US President said that he will exclude the North American Free Trade Agreement (NAFTA) countries like Canada and Mexico.

Chetan Ahya, Co-Head, Global Economics & Chief Asia Economist, Morgan Stanley said that they were dealing with a scenario where there could be temporary trade disputes arising due to US tariffs. But, if there is reciprocal tax imposed as mentioned by the US President, then it would result in a protectionist scenario, which could be worse than the trade dispute scenario.

According to him, the cumulative impact of the US measures so far haven’t been very meaningful.

President Donald Trump had earlier said that the US which has nearly USD 800 billion deficit, is ready for a trade war with other countries, if they retaliated against his decision to impose 25 per cent import tariff on steel and 10 per cent on aluminum.

When asked if he expected a big slowdown in China this year, Ahya said that China’s GDP growth could go down by 30 basis points to 6.5 percent this year. “However, they are constructive considering the ability of China to be able to re-balance the economy”, he added.

The house is also constructive on emerging market growth outlook and the impact of Fed rate hike on them.

“However, if the US 10-year bonds yields were to go up significantly in short term to the tune of 50 basis points or more, then it would temporarily affect the EM asset markets and growth confidence. But underlying fundamentals of the EMs would take charge”, he said.

Talking about India, he said that the current account deficit was within the comfort zone although it had widened. “The GDP growth for the economy is heading towards 7.5-7.7 percent”.

When asked what he made of raised tariffs on number of India products in the recent Budget 2018, he said that it was not a good idea to put in tariffs unless there is some major national security issue.

He is also of the view that the Reserve Bank of India will not hike rates as growth is recovering. “Moreover, at the current juncture inflation is not a major concern for RBI”, he said.

However, they could hike in the second half of 2018.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The US is monitoring India’s currency – that alone could hurt the Indian economy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s persistent buying of the U.S. dollar to keep its local currency cheap has caught the attention of the U.S. Treasury, increasing the risk that Asia’s third-largest economy could soon face the ill effects of a “currency manipulator” branding.

India came under the spotlight after an increase in the “scale and persistence” of its buying up other nations’ money, the Treasury said in an October report outlining the foreign exchange policies of the U.S.’s major trading partners.

But even without the official “currency manipulator” label, being called out by the U.S. Treasury can already limit New Delhi’s freedom in managing the rupee, analysts said. To avoid the designation, the Reserve Bank of India may be looking to reduce its foreign exchange purchases. Doing so at a time when capital inflows are still strong, however, could be costly for the economy, as its domestic currency may become expensive and hurt the country’s competitiveness.

The RBI did not respond to CNBC’s request for comment about the report.

India’s net currency purchases rose to around $42 billion, or 1.8 percent of its gross domestic product, in the 12 months from July, 2016 to June, 2017, the Treasury said. Compared to the $10 billion, or 0.4 percent of GDP, net purchases in calendar year 2016, New Delhi has been on a buying spree.

“Over the first half of 2017, there has been a notable increase in the scale and persistence of India’s net foreign exchange purchases,” the Treasury said, adding that it will be “closely monitoring India’s foreign exchange and macroeconomic policies.”

The RBI intensified the buying of foreign currencies this year after a surge in capital inflows into India’s stocks and bonds sent the rupee appreciating to its strongest in two years against the U.S. dollar. The purchases — to ensure the rupee does not rise to a level that would harm its exporters and other internationally operating firms — also saw India’s foreign reserves hitting an all-time high of $402.51 billion in September.

Those currency moves could potentially lead to India’s inclusion on the U.S. Treasury’s manipulator watchlist, and so the RBI may be looking to pull back on its defense of a cheap rupee. That would see the Indian currency jump in relative value, which would cause negative effects for wide swaths of the economy.

And, if India feels limited in its ability to buy up international currencies, that will also affect its efforts to create robust foreign reserves that would protect against economic shocks.

That’s something that New Delhi should be doing more of, according to Rajiv Biswas, APAC chief economist at IHS Markit. The country should increase its reserves “significantly further” as its current account deficit makes it particularly vulnerable in the event of a capital flight, he explained.

“Increased FX (foreign exchange) reserves help to reassure global financial markets that India is resilient to external shocks, particularly hot money outflows,” Biswas said in an email. “FX reserves are essentially like a fire insurance policy — in good times you complain about the cost, but you only fully understand their value when markets are in meltdown and a currency crisis looms.”

But the RBI’s options are limited if India wants to avoid further scrutiny by the Treasury. The report, published twice a year, is intended to flag any unfair currency practices, and lists three criteria that define an unfair practice.

The first is that a country has at least a $20 billion trade surplus with the U.S. (meaning the value of goods it exports to the U.S. exceeds the value of its American imports by that much). The second criterion is that a country has net foreign currency purchases of at least 2 percent of GDP over a 12-month period.

And the final characteristic is if a country has a current account surplus that’s at a minimum 3 percent of GDP. The current account is a measurement of goods, services and investments that go in and out of a country.

Economies that fulfill two out of the three criteria are put on a monitoring list, which increases the risks of trade sanctions from the U.S. and earning the label “currency manipulator.” Five countries are now officially being watched: China, Japan, South Korea, Germany and Switzerland.

India, however, currently meets only one of those criteria: Its trade surplus with the U.S. came in at $23 billion in the 12 months to June — higher than the $20 billion threshold. The country’s current account deficit and net foreign exchange purchases of 1.8 percent of GDP are helping it avoid being placed on the monitoring list for now.

“We reckon that the U.S. is paying more attention to India this time around as the economy is very close to meeting (the foreign exchange criterion),” Radhika Rao, economist at DBS Group Research, wrote in a note. “This reflects strong rupee appreciation in the first half of the year, which forced the central bank’s hand to intervene to keep real gains in check.”

To avoid a place on the monitoring list, India could reduce its trade surplus with the U.S., but analysts said the pressure to do so is low given that countries such as China and Japan have far larger trade surpluses with the world’s largest economy. That leaves the RBI with only one possibility: slow down its intervention in the currency markets to keep net foreign exchange purchases below the stipulated 2 percent of GDP.

That is “an important step” to take, even if it could result in the rupee appreciating in the short-term, Biswas said. But DBS’ Rao said the central bank will likely face less pressure to buy foreign currencies as much as it did before as capital inflows have slowed in recent weeks.

“Interest in the Asian emerging markets may be cooling off as flows into the region have moderated in recent weeks,” she said. “In all, we see little risks that India might be officially included in the list of economies monitored (by the U.S. Department of Treasury).”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The Best Countries for Long-Term Growth

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Worries over the European debt crisis, a slow recovery in the U.S. and fears over a “hard landing” for China’s economy have left global investors searching for new markets for their money. For long-term investors that means identifying economies that have strong growth prospects driven by advantages such as demographics, natural resources or geography.

The following is a list of the 10 countries with the best prospects for long-term growth. It’s based on a report from HSBC titled “The World in 2050,” which forecasts what the economic landscape will look like over the next 40 years. Some of the economies are already known as economic powerhouses, while others may come as a surprise.

The ranking includes some of the world’s fastest-growing economies as well as those that will have the largest gross domestic product in absolute size by 2050. Excluded are economies that are projected to be less than $400 billion in GDP by 2050. The 2010 and projected 2050 GDP numbers are from the HSBC report and are based on constant U.S. dollar exchange rate in 2000. We calculated the annual average growth rates over the 40-year period based on figures in the report.

Click ahead to find out which countries offer investors the best growth prospects in the next few decades.

10. Algeria

Projected annual growth: 5%

2010 GDP: $76 billion*

2050 projected GDP: $538 billion

Algeria, endowed with Africa’s third-largest proven oil reserves, is one of the richest countries on the continent, and its wealth appears likely to grow further in the coming decades.

Oil reserves of 12 billion barrels have played a key role in luring foreign energy companies, including Anadarko and A.P. Moller-Maersk to the country. Petroleum products, the backbone of the economy, account for 95 percent of Algeria’s exports, according to the International Monetary Fund.

Revenues from its commodities exports have allowed Algeria’s government to accumulate large savings in an oil stabilization fund, estimated to be worth $55 billion, which helped shield the economy from the fall in energy prices in 2009.

An acceleration of household consumption and government fiscal expansion has also helped to boost growth in recent years. In 2009, President Abdelaziz Bouteflika announced a five-year plan to increase government spending from $120 billion to $150 billion to improve national infrastructure, create 3 million jobs, and build 1 million new homes.

Although the country has favorable demographics on its side — with more than half the population under age 35 — the country faces high levels of youth unemployment. Over 20 percent of those in the 16-24 age bracket are unemployed, and Algeria has seen several protests during last year’s Arab Spring.

* Based on 2000 U.S. dollars

9. China

Projected annual growth: 5.1%

2010 GDP: $3.511 trillion*

2050 projected GDP: $25.334 trillion

It may be no surprise that China, the current engine of global growth, is set to be one of the fastest growing economies over the next four decades. But what is noteworthy is that the size of mainland economy, which is currently one-third that of the United States, is expected to grow more than seven-fold to overtake the U.S. by 2050.

It is no wonder that foreign companies across all sectors are flocking to China to set up shop and capitalize on its growth. The country is a leading recipient of foreign direct investment, receiving $116 billion in 2011, according to China’s Commerce Ministry.

Growing wealth among Chinese firms has also led to an increasing amount of outward foreign direct investment — increasing the country’s influence on the world economy. In 2011 alone, China invested in 1,392 overseas projects in 132 countries, totaling $332 billion .

Dubbed the “world’s factory,” China’s economy has been largely fueled by its export sector. However, the country’s latest five-year plan aims to shift the economy’s focus to the development of its internal market. One way it plans to do so is by increasing the spending power of its 1.36 billion population by spurring job creation and implementing minimum-wage requirements. The government recently pledged to raise minimum wages by 13 percent a year through 2015 and launch measures to generate 45 million new jobs.

* Based on 2000 U.S. dollars

8. Egypt

Projected annual growth: 5.1%

2010 GDP: $160 billion*

2050 projected GDP: $1.165 trillion

Egypt, the Arab world’s second largest economy and most populous nation, is a hub for trade routes between Africa, Europe, and Asia due to its strategic location.

The economy relies heavily on agriculture and petroleum exports as well as tourism. Home to one of the most-visited attractions in the world, the Pyramids of Giza, Egypt’s tourism sector employs 10 percent of the country’s workforce and accounts for 11 percent of GDP .

The economy, however, is among the most fragile in this ranking due to Egypt’s political uncertainty. Violent anti-government protests that began in January 2011 and helped topple the government of Hosni Mubarak have continued into 2012. According to the investment bank Credit Agricole, each day of demonstrations costs the economy $310 million. The tourism and manufacturing sectors and foreign direct investment into the country have been most affected by the unrest. FDI, for example, fell 93 percent during the first nine months of 2011, according to central bank data.

While the political uncertainty is clouding the outlook for the economy, some economists believe the revolution, if successful, could bring about positive change that would far outweigh recent short-term losses, including reducing corruption and improving the distribution of wealth.

* Based on 2000 U.S. dollars

7. Vietnam

Projected annual growth: 5.2%

2010 GDP: $59 billion*

2050 projected GDP: $451 billion

As the world’s second-largest exporter of rice, agriculture has been a pillar of Vietnam’s economy. But this is rapidly changing as the government moves to liberalize and diversify the economy.

While, state-owned enterprises contribute 40 percent of the country’s GDP, overseas investment has been on the rise since the country was granted entrance into the World Trade Organization in 2007.

Vietnam’s low-cost manufacturing base has attracted a wave of foreign money, particularly by retail clothing and technology firms, looking for a cheaper alternative to China.

Intel, the first international technology company to make a major investment in the country six years ago, has helped raise Vietnam’s profile as an investment destination. A long list of companies including Samsung, Canon and Foxconn have followed, investing millions into developing manufacturing operations in the country. Analysts say this is helping to lay the foundation for Vietnam to become Asia’s next big electronics manufacturing hub.

Vietnam’s rapid growth in the recent years, however, hasn’t come without a price. The country’s pro-growth policies have resulted in record inflation. In 2011, consumer prices soared over 18 percent, doubling the rate in 2010.

* Based on 2000 U.S. dollars

6. Malaysia

Projected annual growth: 5.3 percent

2010 GDP: $146 billion*

2050 projected GDP: $1.16 trillion

Malaysia, Southeast Asia’s third-largest economy, also has one of the best economic records in the region, growing by an average 6.5 percent per year from its independence in 1957 to 2005, according to the CIA World Factbook.

Once dependent on mining and agricultural exports such as tin and rubber, Malaysia now boasts a diversified economy — a key factor in helping the country bounce back from the 1997 Asian financial crisis faster than its peers. It is now one of the world’s largest exporters of semiconductor devices, electrical goods and solar panels, and is a global center for Islamic banking.

The economy is also supported by a growing domestic consumer base, which the government hopes to boost even further in coming years. In 2010, the country’s prime minister unveiled a plan — the New Economic Model — aimed at more than doubling the per capita income in Malaysia by 2020.

However, it’s not all rosy for the Southeast Asian economy, which is facing an outflow of human capital to more developed countries. An increasing number of Malaysians are looking to countries such as Singapore and Australia for better education and career opportunities. The skills shortage is hurting the country’s ability to attract more high-tech, petrochemical and engineering companies from abroad, according to the Malaysian International Chamber of Commerce and Industry.

* Based on 2000 U.S. dollars

Click HERE to see the rest of the best countries for long-term growth

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow