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World Bank cuts GDP growth targets
Thu, 9 Jun Pre-Open

Most experts are of the opinion that 2011 may not be as robust in terms of economic growth for Asia as the previous year. This view has been endorsed further by none other than the World Bank. In its latest report it has argued that some growth slowdown was welcome in order to ease food and energy price pressures that hit low-income households especially hard.

However, it has also warned that countries cannot afford to remain complacent. Agreed that the non-food inflation has been rather benign, but as per the bank, the interest rates are still low. Thus, this combination of a low interest rate environment and still high food inflation could lead to a situation where wage prices go up and eventually, start feeding the non-food inflation.

In light of the World Bank's views, we believe that RBI's measure of going in for a calibrated rise in interest rates is indeed the right one. After all, prevention is always better than cure.

As per the World Bank, economic growth in South Asia is expected to slow down to 7.5% in the current year. This is a significant decline from the 9.3% growth witnessed in 2010. For 2012, a modest pick-up to 7.7% is expected.

As far as the two fastest growing economies of China and India are concerned, while China's growth is expected to slow down to 9.3% in the current year, that of India is likely to slow down to 8%.

Cutting and slashing economic growth rates isn't confined to Asia alone. Even the US has come in the firing line. The bank cut its forecast for the US expansion to 2.6% from a growth prediction in the range of 2.8% in the month of January this year. The forecast for the next year however stands at 2.9%. What more, the bank also predicted that the likelihood of a 'double dip' in the US is certainly on the lower side.

While the World Bank keeps itself busy predicting growth of countries to the last decimal point, we believe that it would be inappropriate to base stock investment decisions on the same.

Once the fact that long term an economy will keep growing at a steady rate is established, the focus should shift to companies that have competitive advantages, are run by an able management team and are available at attractive valuations.

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Feb 19, 2018 (Close)