Bumpy road ahead?

With 2007 heading to a close it is time to start forecasts for 2008. And the first of the forecasts arrived in my Inbox today.

This one is by Goldman Sachs on the Indian economy. The key takeaways are:

• Economic growth is projected to moderate in 2008 due to high interest rates, rapid currency appreciation, weakening global demand and high oil prices. After a record 9.2% growth in the first half of calendar 2007, Goldman Sachs forecast 8% GDP growth in fiscal 2009 and 8.3% in fiscal 2010.
• However, Goldman Sachs believes the Indian economy is structurally strong and fears of a hard landing are exaggerated. This is a result of India’s reliance on domestic demand and lower external linkages. Exports constitute only 17% of Indian GDP as against 40% for rest of Asia excluding Japan.
• Goldman Sachs also believes that investment demand will be robust powered by capacity expansion and the need to build infrastructure.
• Exporters can expect further appreciation of the rupee. Goldman Sachs expects capital inflows to remain strong which would put pressure on the rupee. Their target for end fiscal 2009 and fiscal 2010 are Rs37.7 and Rs37.0 to the US dollar.
• Not surprisingly the biggest risks to these forecasts are politics and the instability in neighbouring countries such as Pakistan, Sri Lanka and Nepal.

But to end on a positive note, Goldman Sachs believes that concerns of a bigger slowdown along the lines of the one experienced during 1997-2001 when economic growth stalled to less than 5.5% are misplaced as the Indian economy is structurally much different than 1997.

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