Byapaar.com – The Indian Business Blog

It was supped to happen!

When economies around the world were either in recession or contraction, Indian government has been projecting a GDP growth of more than 7% for the fiscal of 2008-09 which many economists and analysts termed as over optimistic. With falling demands in major markets around the world, the only way to keep a high growth rate is to create more demands in the domestic market and Indian government has been trying it through three-staged stimulus package by reducing interest rates and releasing huge flow of funds in the market.

It seems the packages were not timed well as third quarter (ending on 31st December from 1st October) GDP growth fell to 5.30% – thus falling below 6% for the first time since 2003. What is more worrying is the fact that farm sector contracted up to 2.20% and manufacturing sector fell 0.2% from the level during same time last year.

As a result of this, stock market fell by 0.7% during the day and Indian Rupees breached the record Rs. 51 barrier against the Greenback amidst sustained pressure for the dollar by foreign banks and oil importers.

With the announcement of this economic performance, eperts are having varied opinions. Some economist like Sherman Chan of Moodys believe that the governments projection of over 7% growth is over optimistic and it is high time the projection is revised. On the other hand, Pawan Kumar Bansal, the junior Finance Minister says the government still expects GDP to grow at over 7% during current fiscal. This group is of the opnion that the stimulus measures are yet to have major effects and the economy will recover during the 4th Quarter.

whatever happens, Industry is of the opnion of more rate cuts by the Central Bank as they need more liquidity in the market to take full advantage of stimulus packages announced by the government recently. This has necessitated more with this announcement of poor performance by the economy. Most believe that, if the economic growth slips below 6%, there will be huge job losses and India need to maintain a GDP growth rate of 8-9% in order to dent against the huge percentage of its people living below poverty line.

The US greenbuck sank to a historic low beyond 1.53 mark against the stronger Euro ahead of the ECB meeting on Thursday. This has rattled investors worldwide and pushed gold prices at an all time high. The European Central Bank is expected to keep the interest rate at the same level as this higher interest rates over the US rates is the source of Euro’s strength.
Tomoko Fujii, the head of economics and strategy for Japan at Bank of America in Tokyo says -
“There are pretty clear expectations for a widening in interest rate differentials, keeping the dollar at a disadvantage,”
Analysts feel that, it is not only the interest rate for which investors are dumping the US Dollar for the Euro, but there are other factors as well. Recent data coming out of US points towards an economic contraction that has made people weary to put their money on the greenbuck. According to the ADP Employer Services, the US private sector has cut 23,000 jobs during February and coming employment data update also seems to hold bleak prospect.
On the other hand European stocks are coming under severe pressure due to the competitiveness factor caused by a soaring Euro. Banks are the worst hit despite stock markets saw a slight gain yesterday after loss for five straight days . The Japanese Nikkei also gained 1.9 percent on Thursday.

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According to the latest quantitative finance research, most of the loan schemes have been noticed to have a definite change in the pattern of preference. Where business loans have been booked for like anything, cheap loans are not being demanded anymore. Maybe the risks associated with bad credit loans has something to do with this. In any case, for the first time in history of economics, moneysupermarket actually has an explanation for every change.