Regional outlook: South Asia

Speaker: Nenad Pacek, senior VP, CEEMEA,
Economist Intelligence Unit, The Economist

Summarising the global economy in a nutshell, Nenad Pacek, senior VP of CEEMEA, Economist Intelligence Unit, The Economist, said, "Greed-driven stupidity and stupidity-driven by greed."

He believes that the US is going to suffer a recession, which is going to be worse than the Great Depression of 1929. The only redeeming factor will be the knowledge and better preparedness to cope with it. Even the Euro zone is going to suffer a similar abatement in economic growth.

Pacek pins down the reason for the slowdown as the sub-prime crisis and the reckless lending, adding that the government is the only one capable of rescuing the situation. He says, "There needs to be a federal rescue plan together with regularisation of the plan. Thereafter, strong enforcement of the same is going to be a necessity." Similar to the US, even Western Europe is suffering from a credit crunch. Pacek exclaims, "Banks don't trust each other and export exposure is causing problems of its own. European Union Central bank will also not come to the rescue to correct the situation."

Pacek reaches a conclusion that this western world dilemma will have spill-over effects on the developing nations and trends of money control. He says, "Travelling habits will change and preference for travelling far will be replaced by preference to spend holidays at home. But this will be corrected by 2010."

However, the new world will be resilient to the changes and it would be safer for investors to know which side they wish to stand during this tectonic shift. There will also be a rise in commodity prices, which unfortunately is based on speculation. He gives the example of approximately 100 billion euros that have been raised in the oil market based on speculation. However, this does not stop multinational companies investing in developing economies like India, even when they realise that the market may get more competitive.

This obviously raises competition within India, even though it is a complicated market and difficult to conquer. The growth presently is at eight per cent but it will go down to 6.5 per cent within the next three years. This can be attributed to the fact that ASEAN was unable to create a genuine single market within the region, which would have boosted growth. China too will slow down because of it, however India will outperform the ASEAN region within five years.

India's better performance can be credited to its insulated policy - India is less open as compared with other Asian markets - and a steady national growth towards the services industry. However, with rupee becoming stronger it is hurting both demand and the exports of the nation. Even then, it will be reeling under China, which will still be achieving double of its present export value. Risks however are still on the downside for the country and even if India might suffer from the confusion of greed and stupidity, it will recover from it.