Jun 10, 2008|
Asian markets, India's economy & more
Asian markets hit by a roadblock...
The Asian economies (including India), which until some time ago were basking in the limelight led by buoyant stock markets and robust growth rates, are now beginning to lose steam. Surging oil prices, rising inflation and input costs have started to weigh heavy on the economic growth of these nations. Stagflation (inflation combined with slow economic growth and rising unemployment), which is expected to cast a spell of gloom on the US economy, has not helped matters either.
Jobs data released last Friday reported the US unemployment rate posting its steepest one-month rise in 22 years. These developments seem to have spooked foreign institutional investors, as the International Herald Tribune states - "Institutional investors, who have relatively long time frames and large portfolios, are losing patience with Asia, where underlying inflation is at its highest since 1991." Weakness in the stock markets is ample proof of the fact. Monday saw major Asian indices shed around 2% with India seeing a fall of 3%. These developments are definitely going to test the mettle of central banks with no easy solutions.
Investing in inflationary times
...and continue their freefallWorried about falling stock prices? Read on...
After yesterday’s bloodbath that saw major Asian indices shed around 2% with India seeing a fall of 3%, today has brought yet another round of freefall for the former (key Asian markets). Currently, while Chinese stocks are trading 5% down, those trading in Hong Kong are witnessing a 4% decline. Fears of a widening global credit crisis (following substantial losses reported by Lehman Brother yesterday) and rising borrowing costs have spooked these markets. Vibes coming out of the US Federal Reserve, which suggest that the central bank of the world’s largest economy is planning to target inflation (thereby indicating higher interest rates going forward) have also played spoilsport for the Asian indices. How do the Indian markets react remains to be seen.
What's in store for India?
India is beginning to feel the heat too. Inflation has been steadily climbing upwards and has breached the 8.2% mark with forecasts that the same is likely to hit 9.5% by the end of the year. The RBI is having its hands full at the moment trying to counter inflation without stifling growth, which is certainly an uphill task.
Earlier, when inflation was well within the RBI's comfort zone of 5% to 5.5%, the problem was the sharp appreciation of the rupee, which was fuelled by FII money pouring into the country bolstered by the strong growth in India's GDP. The tide seems to have turned now. India's acute problems of a burgeoning trade and fiscal deficit have once again come to the fore, consequently putting a downward pressure on the rupee. Further, rising crude prices do not seem to have made any significant impact on the government, which is reluctant to do away with subsidies.
The solution of issuing oil bonds to oil marketing companies (OMCs) is only expected to worsen the fiscal deficit further. Add to this the farm waiver loans to the tune of Rs 710 bn and the scenario looks grim. With elections due next year, these are indeed testing times for the ruling UPA government, which has caught the ire of the common man (due to rising inflation) and the Left (due to the hike in petrol and diesel prices). Impact on OMCs of recent fuel price hike
Reducing carbon emissionsAs you sowed carbon...
While soaring oil prices are wrecking havoc on economic growth of various countries, the same is expected to have an impact on the environment as well. As reported by the International Herald Tribune that gas quoted statistics from the International Energy Agency (IEA), investments totaling US$ 45 trillion might be needed over the next 50 years to prevent energy shortages and greenhouse gas emissions from deflating global economic growth.
The IEA has stated that emissions of carbon dioxide are expected to climb 130% and demand for oil is likely to rise by 70% by 2050. Rising crude prices would lead to countries switching to coal, which though less expensive is very polluting. The agency has outlined two broad measures to reduce carbon emissions. One is using technologies that improve energy efficiency and reduce emissions from power generation. The second measure involves equipping more than 50 natural gas and coal power plants every year with equipments to capture carbon dioxide, having 32 nuclear plants each year, increasing the number of wind turbines by 17,500 annually, developing solar energy and biofuels, the latter particularly from sources that do not compete with food for farmland. Whew! A Herculean task indeed!
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