Across the world, people, irrespective of their religion and nationality, are all set to celebrate the advent of New Year 2008 with much verve and enthusiasm. All hope for a better future and prevalence of happiness and prosperity in the global family.
Economy Watch wishes you all the best for the forthcoming year. On this occasion, we join the global festivity by presenting to our global audience a short analysis and set of predictions on World Economy 2008.
The world economy is predicted to continue growing in 2008. However, the rate of growth is expected to be lower than the current year. The projected world growth rate for the year 2008 is around 4.8%, whereas the ongoing growth rate for 2007 year end is 5.2%. Central Banks of different countries are expected to stay away from monetary restrictions in the face of inflations. This is expected to contribute significantly to the growth of the world economy in 2008. Also high investment is expected to continue in the year ahead. The most interesting aspect of economic growth in 2008 is the fact that the world economy in the said year is expected to be driven by emerging economies like China and India, rather than by economies of USA, European countries and Japan.
Growth prospects for the world economy in 2008
The slowdown in the world economy in recent times has been attributed to the slow growth of the US economy. Private consumption in the USA has lacked momentum. The Real Estate sector worldwide has faced severe crisis. In the global economy, volatile oil prices, fluctuating financial markets and continued inflation are forecasted to be the major threats to economic growth in 2008. However, the momentum of growth in the emerging economies is an encouraging sign for the world economy. According to IMF Chief Economist Simon Johnson, China and India are expected to make the largest country level contributions to the growth of the world economy. Higher corporate profits, high employment and growing international trade are positive traits prevailing in the world economy which can be expected to continue through 2008.
The performance of the developing countries will remain a key factor in the world economy in 2008. While Emerging Asia (mostly East and South East) is expected to grow at 8.3% in 2008, Africa and the Middle East are expected to grow at 6.5% and 5.9% respectively.
US economy in 2008
The US economy is experiencing low growth rates. By the end of 2007, the US economy is expected to register a growth rate of only 1.9 %, one of the lowest growth rates the United States of America has seen in recent years. Although economists do not perceive the risk of an immediate recession in the US economy, however, lack of growth in industrial production, decline in the real estate sector, slow growth of employment and insufficient business credit are factors that would weigh heavily on the growth of the US economy in 2008. Economists have projected a 3% growth for the US economy in 2008.
Chinese Economy in 2008
The Chinese economy is forecasted to grow at 10.9 % in 2008 which, in spite of a slowdown from 2007, would still be substantial. China’s global trade surplus is predicted to reach the 300 billion dollars mark next year which is a growth of 20%. Inflation of 4.5% is forecasted for the Chinese economy in 2008.
Indian Economy in 2008
A growth of above 8% has been forecasted for the Indian economy in 2008. According to Indian Finance Minister Mr. P. Chidambaram, Indian exports would reach the $200 billion mark in 2008. The growth of the service sector which contributes more than 50% to India’s GDP, the potential of the Indian Stock market and the appreciating Indian Rupee are expected to be major factors in India’s economic growth in 2008.
Japanese Economy in 2008
Growth in the Japanese economy is expected from higher investments and increasing private consumption. The Japanese economy, growing at 2.4 % in 2007 is expected to grow at 2.2 % in 2008
The Middle East Economies in 2008
The Middle East economies are expected to benefit from rising oil prices. An average 5.9 % growth rate has been forecasted for the Middle East economies, while Iran and Egypt are expected to register higher growth rates.
African Economies in 2008
After years of slow growth, the African Economies are gaining momentum and maintaining steady growth rates. The average growth rate of the Sub Saharan African economies, which was 5.7% in 2006, is expected to be at 6.1 % at the end of 2007 and further rise to 6.8% in 2008. The African oil exporting countries like Nigeria and Angola are providing boost to the African economies.
European Economy in 2008
Capacity utilization is expected to increase in the European economy (Euro countries) in 2008. Growth of 2.3% is forecasted for the Euro economy in 2008.
UK Economy in 2008
Growth in the UK economy is also forecasted to slow down in 2008. Currently growing at 2.6%, it is expected to grow at 2.3% in 2008.
Russian Economy in 2008
The Russian economy, growing at 7 % in 2007 is expected to grow at 6.5 % in 2008.
Tuesday, August 26, 2008
FDI inflows likely to swell to $40 bn
Foreign direct investment (FDI) inflows are likely to expand by 62.8 per cent in 2008-09 to $40 billion, as against $24.57 billion in the last financial year as the services sector is expected to attract a major chunk of foreign investments
“In the January-June period of 2008, FDI inflows crossed $20 billion, while in the first quarter period (April-June) this year, inflows were over $10 billion. Looking at this trend, FDI inflows in 2008-09 may cross $40 billion,” industry secretary Ajay Shanker told reporters at a Ficci seminar here today.
“Higher FDI inflows will help in moderating the depreciation of the rupee against the US dollar,” said Saugata Bhattacharya, vice-president, Axis Bank.
Significantly, the Prime Minister’s Economic Advisory Council had estimated FDI inflows, which are long term foreign investments, would be of the order of $46.2 billion in 2008-09. The commerce and industry ministry had forecast an FDI inflow $35 billion in the current fiscal. The industry secretary’s estimate falls between the two projections.
Moreover, with increasing number of Indian companies investing abroad, the council had forecast an FDI outflow of $26.5 billion during 2008-09. As a result, the net FDI inflow is pegged at $19.7 billion during the current fiscal.
With the wholesale price index-based headline inflation currently at a 16-year high, the domestic equity markets have become less attractive for overseas investors. According to data released by the Securities & Exchange Board of India today, the net outflow of equities held by foreign investors between January and August this year stood at $7.7 billion.
Desegregated data available with the Department of Industrial Policy and Promotion shows that between April and May this fiscal, the tax haven of Mauritius continued to be the top source of FDI inflows ($2.85 billion), followed by the United States ($794 million) and Singapore at $616 million.
In the first two months of 2008-09, financial and non-financial services sector attracted FDI inflows of $1.19 billion, followed by construction sector with $1.16 billion.
“In the January-June period of 2008, FDI inflows crossed $20 billion, while in the first quarter period (April-June) this year, inflows were over $10 billion. Looking at this trend, FDI inflows in 2008-09 may cross $40 billion,” industry secretary Ajay Shanker told reporters at a Ficci seminar here today.
“Higher FDI inflows will help in moderating the depreciation of the rupee against the US dollar,” said Saugata Bhattacharya, vice-president, Axis Bank.
Significantly, the Prime Minister’s Economic Advisory Council had estimated FDI inflows, which are long term foreign investments, would be of the order of $46.2 billion in 2008-09. The commerce and industry ministry had forecast an FDI inflow $35 billion in the current fiscal. The industry secretary’s estimate falls between the two projections.
Moreover, with increasing number of Indian companies investing abroad, the council had forecast an FDI outflow of $26.5 billion during 2008-09. As a result, the net FDI inflow is pegged at $19.7 billion during the current fiscal.
With the wholesale price index-based headline inflation currently at a 16-year high, the domestic equity markets have become less attractive for overseas investors. According to data released by the Securities & Exchange Board of India today, the net outflow of equities held by foreign investors between January and August this year stood at $7.7 billion.
Desegregated data available with the Department of Industrial Policy and Promotion shows that between April and May this fiscal, the tax haven of Mauritius continued to be the top source of FDI inflows ($2.85 billion), followed by the United States ($794 million) and Singapore at $616 million.
In the first two months of 2008-09, financial and non-financial services sector attracted FDI inflows of $1.19 billion, followed by construction sector with $1.16 billion.
Cos may shift to alternative fuel
Companies which use diesel to run their backup generators say they would shift to alternative fuels if the government decides to adopt dual pricing, where these firms would be charged higher and retail customers would continue to get subsidised fuel.
Corporations in many states are forced to use their own diesel-powered generators as state electricity boards are unable to supply uninterrupted power due to demand far exceeding electricity generation.
Even at the current subsidised price, manufacturing units claim it costs two to three times more to run a diesel-powered genset against what they pay to electricity boards.
“If diesel prices go up, we would shift to other fuel options,” said P K Jain, former president of PHD Chamber of Commerce and Industries and also the chairman of Gurgaon-based The Malt Company (India) Ltd, which uses diesel gensets to produce captive power.
“But if we shift to other fuels, the price of that fuel would go up and ultimately it’s the consumer who is going to pay higher,” he added.
At present, around 25,000 Mw is generated through captive plants in the country, which is about 17 per cent of India’s total installed power generation capacity of 145,000 Mw. A bulk of this captive power — about 80 per cent — is generated through diesel gensets and is used to combat power shortages.
Therefore, the subsidised diesel meant for the transport sector has increasingly found its way to sectors like power and fuelling demand for the commodity.
The most recent increase in diesel prices coupled by a rise in demand has resulted in a 12-15 per cent spurt in the fuel bills of captive power generators using diesel. The government recently increased the retail price of diesel by Rs 3 per litre.
“The increase in the price of diesel has caused a 12-15 per cent increase in our fuel bills. It is not possible to absorb the high cost. We have to rely on diesel for power generation because we are not getting enough power supply from the state electricity board,” said Jain.
The cost of captive power generation by using diesel has risen up to Rs 11-12 per unit, which is significantly higher than Rs 4.50 per unit, the rate at which his company is supplied power by the state electricity board, reducing the profit margins, he added. His is one of the many companies in the area which rely on diesel-fired captive gensets in Haryana.
Textile exporters at Tirupur in Tamil Nadu are also depending on diesel-powered gensets to tide over daily power outages of four hours. It costs around Rs 10 per unit of power generated if diesel-powered captive genset is used; nearly 40 per cent more than what they would pay to the Tamil Nadu Electricity Board.
Earlier this month, Petroleum Minister Murli Deora had also said “there is a 23-24 per cent unforeseen increase in demand because it is being used in power generation”.
The rise in demand for diesel has fuelled to a large extent by its supply to power sector companies.
“With the prices of crude oil sky-rocketing, power generators do not have much choice. In near future, if crude settles down to $80-100 per barrel, then the market will become fair for diesel too,” said a senior analyst with an accounting and consulting firm.
The higher diesel prices have affected not only captive power generators but also bigger power producers like NTPC Ltd.
Corporations in many states are forced to use their own diesel-powered generators as state electricity boards are unable to supply uninterrupted power due to demand far exceeding electricity generation.
Even at the current subsidised price, manufacturing units claim it costs two to three times more to run a diesel-powered genset against what they pay to electricity boards.
“If diesel prices go up, we would shift to other fuel options,” said P K Jain, former president of PHD Chamber of Commerce and Industries and also the chairman of Gurgaon-based The Malt Company (India) Ltd, which uses diesel gensets to produce captive power.
“But if we shift to other fuels, the price of that fuel would go up and ultimately it’s the consumer who is going to pay higher,” he added.
At present, around 25,000 Mw is generated through captive plants in the country, which is about 17 per cent of India’s total installed power generation capacity of 145,000 Mw. A bulk of this captive power — about 80 per cent — is generated through diesel gensets and is used to combat power shortages.
Therefore, the subsidised diesel meant for the transport sector has increasingly found its way to sectors like power and fuelling demand for the commodity.
The most recent increase in diesel prices coupled by a rise in demand has resulted in a 12-15 per cent spurt in the fuel bills of captive power generators using diesel. The government recently increased the retail price of diesel by Rs 3 per litre.
“The increase in the price of diesel has caused a 12-15 per cent increase in our fuel bills. It is not possible to absorb the high cost. We have to rely on diesel for power generation because we are not getting enough power supply from the state electricity board,” said Jain.
The cost of captive power generation by using diesel has risen up to Rs 11-12 per unit, which is significantly higher than Rs 4.50 per unit, the rate at which his company is supplied power by the state electricity board, reducing the profit margins, he added. His is one of the many companies in the area which rely on diesel-fired captive gensets in Haryana.
Textile exporters at Tirupur in Tamil Nadu are also depending on diesel-powered gensets to tide over daily power outages of four hours. It costs around Rs 10 per unit of power generated if diesel-powered captive genset is used; nearly 40 per cent more than what they would pay to the Tamil Nadu Electricity Board.
Earlier this month, Petroleum Minister Murli Deora had also said “there is a 23-24 per cent unforeseen increase in demand because it is being used in power generation”.
The rise in demand for diesel has fuelled to a large extent by its supply to power sector companies.
“With the prices of crude oil sky-rocketing, power generators do not have much choice. In near future, if crude settles down to $80-100 per barrel, then the market will become fair for diesel too,” said a senior analyst with an accounting and consulting firm.
The higher diesel prices have affected not only captive power generators but also bigger power producers like NTPC Ltd.
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