We look selectively at the BRICs….Namely India.
India Seems to becoming a mess. Its economic growth has slowed. Government reforms have stalled. The government seems to have fallen out of love with reform. Tainted money lies beneath balance sheets of far too many companies. The boom in high rise construction in Mumbai may be an indication of excess credit. Investors are nervous. Corruption in high places and depreciation in the rupee evidences the slowdown. India is as corrupt as Russia, without the violence. Governance stinks and infrastructure improvements have been slipshod. Indian industry is finding it increasingly difficult to compete internally and in external markets. When India’s economy was closed, it was moribund and hopeless. New money swirls in volume, but hope has grown many times faster still. Over 500 million people are under the age of 35, an indication of colossal opportunity or of phenomenal potential unemployment battles it out.
Some of the key findings from the Globalization survey conducted by the Economist are intriguing:
• Business executives expect the world economy to be in recession soon; confidence in emerging markets wavering too
• A worsening international business environment could get compounded by a rise in protectionism.
• Businesses see expansion in rapid-growth markets as crucial but increasingly challenging.
• Corporate supply chains are becoming ever more global and complex.
• Finding the right talent in rapid-growth markets is emerging as a key business challenge.
While the gains so far may be modest, evidence suggests the US recovery is gathering strength and could finally be on track to regaining its old form.
Unemployment is at a three-year low and consumer spending is slowly starting to rise. But there are concerns that two events outside the United States could put an end to the recovery before it can get truly established. Of the two external threats, the growing risk of recession in the Eurozone is garnering the most attention. However, the possibility of a slowdown in China is equally capable of sending the US economy into another tailspin.
Earlier this week, and in the midst of some of the most violent demonstrations of the past two years, the Greek parliament passed a series of new austerity measures under pressure from the “troika” of lenders – comprising the European Central Bank, the European Union, and the International Monetary Fund. So far, Greece’s efforts to deal with a widening deficit gap have been underwhelming. Spending continues, for the most part, unabated.
The government also promised to raise funds by selling roughly €50 billion ($65.8 billion) worth of government assets. The reality, however, is that in the past two years, the government has raised only €1.7 billion through asset sales. It now appears efforts to sell additional properties have been abandoned.
Understandably, certain eurozone members – the ones footing the lion’s share of the rescue package –are rapidly losing patience. The uncertainty arising from these events appear to almost certainly lead to a similar fate for Portugal and possibly Spain. The hurt will continue.
For the first time in two years, monthly exports fell in China this past January. The Eurozone played its part. This shows that consumer spending in China is on the decline. Continuing weakness is bad news for the global economy.
The euro-crisis script has not changed much over the past year.