India to grow at 6.8% in 2012: E&Y
India is expected to grow at 6.8 per cent this year, as against the previous forecast of 8 per cent, but expansion is expected to accelerate strongly in 2013 to touch 9.5 per cent, global audit and consulting firm Ernst & Young (E&Y) has said.
E&Y had pegged GDP growth for 2012 at 8 per cent in the first Rapid-Growth Markets Forecast (RGMF) in October.
"While growth in the current year has moderated, India's medium-to-long-term growth prospects remain intact," E&Y India Partner & India Markets Leader Farokh Balsara said in a statement.
According to the latest RGMF, growth in India is expected to accelerate strongly in 9.5 per cent next year as the global economy recovers, impact of previous interest rate tightening wanes, investments increase and exports pick up.
An improvement in both domestic and external demand will feed the recovery in growth, it said.
E&Y said slackening demand, turbulent and volatile markets and credit liquidity problems in Europe are beginning to squeeze rapid-growth markets (RGMs) but not to the extent of derailing robust economic performance.
The RGMs are expected to grow collectively by 5.3 per cent this year, in stark contrast to the mild recession expected in the euro-zone in H1 2012 and modest growth in the US, according the latest E&Y report.
While growth in the RGMs will continue to be the envy of advanced economies, in the near term, they are showing the strains from the fall in demand from the eurozone, as well as the buffeting to financial markets and business confidence over the past few months, the consulting firm said.
"As a result, growth in 2012 is expected to be lower than forecast by RGMF in October. However, these markets will continue to contribute nearly half of the world's growth over the next three years."
RGMF also observed a reversal in portfolio flows since July as investors became increasingly risk averse. Threats to liquidity and lending by European banks with a wide global reach are particularly disquieting for RGMs, it said.
Banks are selling assets and cutting back on loans under pressure to strengthen their capital which is weakening financial flows into and within RGMs with potentially depressive impacts not only on business operations but also business investment, the report said.
The immediate impact has been currency depreciations, most notably in Brazil and India. The sharp depreciation of the Indian rupee led to increased inflationary pressure on the economy, said the forecast. "While growth prospects in the short-term have been dented by the turmoil in global markets, and could be further affected by the events in the euro area, growth in RGMs is set to rise about 6.5 per cent in 2013-14, a pace of expansion that will be significantly higher than in advanced economies," it added.
SOURCE: financialtimes.com |
