India, China economies dominate Q3 FY09 world growth
By siliconindia   |   Monday, 21 December 2009, 23:03 IST   |    2 Comments
Printer Print Email Email
India, China economies dominate Q3 FY09 world growth
Bangalore: Following the economic crisis, India and China are the economies which have come most strongly in third quarter world growth and reported year-on-year GDP (Gross Domestic Product) expansion of 7.9 and 8.9 percent respectively. This result has brought out the fact that India and China have the greatest counter-cyclical economic strength to the well known one that they have the greatest potential for longer term economic growth, reports Economic Times. The present international recession is not driven by a supposed downturn of U.S. consumers, which has factually not occurred. During the third quarters of 2008 and 2009, GDP of U.S. has declined by $280 billion. But U.S. personal consumption fell by only $80 billion. In contrast U.S. fixed investment fell by $552 billion or 196 percent of the decline in GDP; statistically possible as improvement of the U.S. balance of trade partially offset it. Similarly other economies have also registered major fall in their investment accounts, with UK- 52 percent, Japan-53 percent, Italy-77 percent and France- 99 percent. Taking the G7 economies together the figure is 77 percent. In contrast, the strength of India and China has been that their extremely high rates of investment have not declined significantly. At 35 percent and 42 percent of GDP, respectively, the levels of gross domestic fixed capital formation in India and China are the highest in the world. It is rising rates of investment in India and China, as opposed to declines in Japan and South Korea, that have led the former to replace the latter as Asia's powerhouses. India and China's success in confronting the financial crisis simply confirms that their ability to maintain very high investment rates allows them to resist negative cyclical trends as well as maintain the world's highest growth rates. A second condition for success however will be whether they are able to continue to calibrate the stimulation of domestic demand with the new reality of the external market which their very success has created. Annual percentage growth in India and China has long exceeded the U.S. Now the combination of India and China has overtaken the U.S. as the primary quantitative source of world growth. In this new multilateral pattern of world trade so far China has a significant advantage compared to India. For both India and China the proportion of their exports going to the most rapidly growing markets, the developing economies, is rising; representing slightly over 50 percent of India's exports and slightly under 50 percent of China's. But India's greatest diversification and growth of exports, more than 20 percent of its total, is to the Middle East. This is a major market but cannot compare in scale to the Japan, South Korea, ASEAN interrelation which China has now established. Most significantly, of course, the most rapidly growing market which both India and China face is each other. The rapid economic developments of South Asia and East Asia were each relatively autonomous of each other in the 1990s and during first ten years of the 21st century. Current economic dynamics mean such a situation is unlikely to survive its second decade.

siliconindia