GDP: Warning Signals

by Manas Chakravarty/ BW

Despite the 9.3 per cent GDP growth in the January-March quarter, Morgan Stanley is now saying that a slowdown in the economy is imminent. Says Chetan Ahya, executive director and India economist, JM Morgan Stanley: “Over the next 18-24 months, the Indian economy will slow down to below 7 per cent, while Chinese growth will decelerate to below 8 per cent.” The Chinese economy grew by 10.3 per cent during January to March.

The reason for the slowdown? No movement on reforms. According to Morgan Stanley, both India and China have been concentrating on a headline growth strategy without addressing the hurdles. This has been possible because of low real interest rates environment in the US, which has enabled India to benefit from an asset price bubble while China has gained from an investment bubble.

Now that that environment has changed decisively, GDP growth rates too will slow down.
The silver lining? Morgan Stanley doesn’t expect India’s growth rate to drop below 6.5 per cent, which will still make it one of the fastest-growing countries in the world.
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