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While the global economy is still in an uncertain state and trade flows
remain subdued, rapid-growth markets around the world are proving
resilient. RGMs are expected to grow collectively at 5.3 per cent this
year, bouncing back to 6.3 per cent in 2013, according to Ernst & Young's quarterly
Rapid Growth Markets Forecast.
Despite the decline in financial wealth in H2 2011 in many markets,
demographic trends and rising real incomes over the medium term are set
to underpin strong consumption.
As per the forecast, an unexpected, strong pickup in activity towards the end
of last year and beginning of this year in some rapid-growth markets means they
will contribute over one-half of global growth over the next three years.
Rain Newton-Smith, Senior Economic Adviser to Ernst & Young's Rapid
Growth Markets Forecast, explains, "RGMs are proving resilient in the face
of the twin impacts of the Eurozone recession and continued tensions in
the Middle East. Although not all RGMs are enjoying equally solid growth
prospects, they are still offering good opportunities to companies and
investors across a wide range of sectors."
India is expected to grow at 6.1 per cent in calendar year 2012, similar to
the pace recorded in Q4 2011. Growth should be picking up in H2 2012,
provided the global economy does not experience a further shock. Over the
medium term, E&Y expects a strong recovery in investment which will help
lift overall GDP growth over 9 per cent by 2014.
Says Farokh Balsara, Partner, and India Markets Leader, Ernst & Young
India, "India's domestic demand-driven growth model is acting as a catalyst
for attracting foreign investments into the country. Although the ongoing
global uncertainty may have prompted global investors to become more
cautious, India's inherent advantages and proven resilience to counter-act
macroeconomic challenges generally outweighs these concerns."
According to the forecast, in India, the biggest development will be in the lower
middle class with the number of households with disposable income of $5,000
to $15,000 rising to around 150 million in 2020 from just under 100 million
now. In particular, this represents opportunities for companies in the developed
economy such as US and Europe for investments.
While the purchasing managers index (PMI) and car sales data in January
and February of 2012 have hinted at a stronger growth dynamic for India, the
country will need to address rising inflation, which is still high. As per the forecast,
the country's central bank will not be in a position to cut interest rates
until core inflation (excluding food) is on a clear downtrend, and that may still
be some months off, particularly as the economy actually has gained considerable
momentum recently. The forecast adds, wholesale price inflation
should trend down through 2012 to about 5 per cent in Q4, reflecting the
lagged impact of the weaker economy and lower food prices.
Trade between rapid-growth markets will see the fastest growth over the next
decade as a result of changes in both the costs of production and the demand
for goods, says the forecast. Flows in goods from China to India are expected to
grow by an impressive 22 per cent per year over the next decade.
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