The chances that the US will be in recession soon are growing by the day. What will that mean for India?
The Asian Development Bank (ADB) said on Monday that growth in the region has been unexpectedly strong this year, largely because of the strength of the Indian and Chinese economies. ADB has increased its growth estimate for 2007 from 7.6% to 8.3%. It also says that growth in 2008 will be marginally lower, at 8.2%.
But there is a joker in the pack: a US recession. It could reduce regional growth by between 1% and 2%. Obviously, a recession in the world’s largest economy will impact countries with different intensity.
ADB says that while most Asian countries have ample forex reserves, those whose treasure chests have swelled on capital inflows, rather than export revenues, are at greater risk.
India is one clear example. But we feel that India has strengths, which will balance this out—strong domestic demand and healthy banks.