Leading New York-based think tank the Conference Board has said China and India will account for half the world’s economic growth in the next 10 years. While the world economy (under the baseline scenario) is expected to grow at 4.4% annually over the 2010-20 decade, China will account for 1.7 percentage points of that growth, India 0.6 percentage point and other developing economies will account for another 1.1 percentage points. Emerging economies as a whole will contribute 3.4 percentage points to annual global growth, with around 1 percentage point coming from the developed world. The point about a shift of economic power to emerging countries has been made, but perhaps not in quite so dramatic a fashion.
Growth in emerging economies on an average is expected to be more than three times faster than growth in the advanced economies in the next decade.
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At the same time, the research firm has warned that if the emergence of uncontrolled inflation or a mishandling of corrections to overvalued assets in China or India is not managed properly, that could reduce global growth for 2010-20 by as much as 2 percentage points. The point is that the growth of the world economy is now dependent on growth in India and China.
The Conference Board also forecasts that India’s share of world output, estimated at 5.3% in 2010, will rise to 8% by 2020 (in purchasing power parity terms)—it was 4% in 2000. China’s share of global output is expected to increase from the current 16.3% to 24% over the same period.
Interestingly, India’s growth is expected to outpace that of China in the second half of the decade. The think tank predicts India’s gross domestic product (GDP) growth at an annual rate of 8.3% over 2010-15, while pegging China’s GDP growth rate at 9.2% over the period. Its forecast for 2015-20, however, puts India’s GDP growth rate at 9.1% per annum, compared with China’s 7.9%. In the short term, Indian growth is expected to accelerate in 2011 to 8.4% from 7.5% this calendar year. That’s in contrast to most other countries, including China, which are expected to see growth rates decline from their current year’s levels.
The numbers underline the argument that funds have strong fundamental reasons for flowing to the Indian and Chinese markets. Analysts often compare and contrast the current valuations in the market with the historical average. But if growth is accelerating, does it not mean the markets can now support a higher price-earnings multiple and comparisons with a past when growth was lower could be misleading?
Graphic by Yogesh Kumar/Mint
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