Over the last few days, most Indian markets had eyes riveted on the US economy, the US Fed and the dollar performance. That is not surprising because normally the US economy has set the tone for the entire global economy. That is partly due to the size of the US economy and partly due to the exorbitant privilege that the US Dollar enjoys. However, there is a subtle shift that is happening. While the Fed and Trump policies will still matter, India should increasingly keep an eye on other geographies…
Growth in EU and Japan…
A recent report brought out by the IMF has been quite explicit in highlighting that the big thrust to growth in the next few years will not come from the US. In fact, the US is expected to grow at less than 1.7% while the world economy will be growing at around 2.8%.Among the EMs, the growth will be driven by India and China. But,interestingly, among the developed markets, the growth in global GDP will be driven by the EU and Japan. After years of stagnation, EU is finally benefiting from a weaker currency. Trade is picking up and EU growth has shown positive cues in recent months. With the ECB maintaining an accommodative monetary stance, the impetus to growth and output will continue. Japan is already a safe haven and could be increasingly contributing to global growth. India should ideally focus on these two geographies!
Chinese demand will be the key…
The prices of base metals like aluminum, copper and zinc have gone up by nearly 15% since the beginning of this calendar year. The big trigger has been higher demand from China. Not only is China investing again in a big way but it is also encouraging its companies to build up strategic inventories of base metals. The Chinese Railway is investing nearly $400 billion in revamping its infrastructure and that is going to give a substantial boost to Chinese demand for base metals. With the Chinese GDP now bottoming out around the 6.7% mark,the concomitant benefits to global growth will be huge as China contributes 50% to global growth each year. On the other hand,Trump’s promises on tax cuts and infrastructure spending have been more of bluster!
Shifty our data focus…
OK,you cannot really ignore what the Fed is doing and how the dollar is behaving. But, start focusing on more critical data points. Indian pharma and IT companies are already wooing European clients in a big way. That is where they see incremental growth coming from. Focus your economic approach more on data points that emerge from the EU,Japan and China. The IMF is right. The US is becoming more insular and closed and is therefore likely to matter less to the global economy. It is time for the shift!
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