Showing posts with label VULNERABLE. Show all posts
Showing posts with label VULNERABLE. Show all posts

Tuesday 29 March 2016

The Chinese slowdown and its impact on India

Full immunity from China’s economic slowdown is not something that India can boast about.

China’s changing priorities may see India emerge as an alternative export hub for some products, aided by lower labour costs and its eagerness to become a hub for exports of goods.
China’s slowing economy is a worry for countries that have strong linkages to it. India is fortunate in that it is less vulnerable to economic shocks emanating from China, but it is not entirely ring-fenced either. Much has been written on the moderation in China’s growth, but latest research from the International Monetary Fund (IMF) and the Asian Development Bank (ADB) gauge its impact on the world economy.
The IMF’s working paper China’s Slowdown and Global Financial Market Volatility: Is World Growth Losing Out?finds that a 1% permanent negative Chinese gross domestic product (GDP) shock reduces global growth by 0.23% in the short run. Its slowing economy has a negative effect on the Asean economies (except for the Philippines) and those in the Asia-Pacific (except for India). India is protected most likely due to its weak trade links with China.
The ADB brief based on its report Moderating Growth and Structural Change in the People’s Republic of China: Implications for Developing Asia and Beyond says China’s growth has reduced from 7.3% in 2014 to 6.9% in 2015, and the latest consensus forecasts expect it to decline further to 6.8% in 2016 and 6.6% in 2017. But downward revisions to previous forecasts raise a risk that these may be revised, too.
The ADB brief says the decline in China’s growth is expected to reduce GDP in the rest of developing Asia by one-third of a percentage point in the next two years. It also maps the effect of China’s slowing economy on commodity prices, finding that a 1% reduction in China’s growth lowers the price of coal, metals and oil and gas (see chart).
This decline in prices has become an indirect risk for India as falling commodity prices pose a risk to significant investments made by firms in metals, mining and oil exploration sectors.
But there is a silver lining. China’s changing priorities may see India emerge as an alternative export hub for some products, aided by lower labour costs and its eagerness to become a hub for exports of goods.
India may appear to be doing fine, relative to some other Asian economies that have been winged by China’s woes. On one factor, however, it remains vulnerable. The IMF paper also assesses how global financial market volatility could arise due to China’s problems. Here, it finds that even commodity importers such as India may find real output falling by an average 0.19% in the first year following the shock. Full immunity from China’s economic slowdown is not something that India can boast about.

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