Apr 15, 2008|
India's inflation worries, US economy and more...
Woes of rising inflation continue to bog the Indian economy as escalating food and metal prices (steel in particular) have been the chief culprits in stoking inflation. While the government has responded by banning the exports of pulses and rice (except basmati) and reducing the import duty on certain edible oils, whether these measures will be effective in cooling down prices remains to be seen. Steel prices have also been charting an upward path, which have been hurting industries such as auto for instance. This has put immense pressure on steel companies to reduce prices, which in turn are unwilling to do so as the input costs (namely iron ore) are heading northwards due to the shortage of the same. Rising inflation has not made matters easier for the government either given that elections are due early next year. The only certainty seems to be the fact that the RBI is unlikely to soften interest rates in the near future till the inflation to a certain extent is tempered.
Meanwhile, US stocks were battered on Friday as news regarding weak corporate earnings continued to trickle in. The Indian stock markets, which have been increasingly mirroring the trends in the global markets, were spared, as Monday was a holiday. Recessionary trends are increasingly haunting the US economy with corporates reporting subdued quarterly results. This week is not expected to provide any relief either as a slew of financial companies announce their quarterly results. Further, as per the Economist, the latest labour market figures reveal a jump in the unemployment rate to 5.1% and the loss of 98,000 private sector jobs in March, the fourth consecutive month of decline.
The IMF in its World Economic Outlook April 2008 has stated - "The U.S. economy slowed considerably to grow 2.2% in 2007, down from almost 3% in 2006. The pace of activity weakened sharply in the fourth quarter to only 0.6% (at an annualized rate). With the housing correction continuing full blast, the contraction of residential investment sliced a full percentage point off growth in 2007. Consumption and business investment also softened markedly toward the end of the year, as sentiment soured and lending conditions tightened significantly after the outbreak of financial turbulence in August, despite the Federal Reserve's aggressive turn to monetary easing. Rising oil prices helped dampen consumption, while also boosting 12-month headline inflation to 3.4% in February".
IMF expects the US economy to fall into a modest recession in 2008, followed by a gradual recovery starting in 2009. This is expected to be somewhat slower than that following the 2001 recession as household and financial balance sheets are repaired. All major components of domestic demand are expected to perform poorly during 2008. Residential investment is expected to drop, consumption is expected to decline on the back of tight credit and deteriorating labor market conditions, despite tax credits in the recently enacted fiscal stimulus package. Business investment is also expected to remain sluggish.
In 2009 too, consumption is expected to remain subdued, as households continue to raise their savings rate after a long period during which personal wealth was bolstered by robust capital gains on assets rather than by savings from income. US exports off late have been growing at a strong rate due to buoyant demand from the emerging economies and a sharply depreciating dollar and the IMF expects net exports to continue to be the silver lining in the dark cloud, bringing the current account deficit further down to about 4.2% of GDP, despite sustained firm oil prices.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407