Economic growth slows in China, India
December 2, 2011

The world economy is in a worst state than the financial doldrums of 2008, according to Chinese and Indian statisticians and analysts.  Manufacturing the backbone of the Chinese economy slowed to the lowest in three years and Indian GDP fell to the slowest growth in two years.

Zhu Guangyao, China’s sherpa to the Group of 20 talks and also a vice finance minister, said heavily indebted countries had limited scope to act now, which will make it harder to sustain global growth as the European debt saga drags on, emphasizing why the world economy is in a worst state than 2008.

China’s official purchasing managers’ index for November fell to 49, dipping below the 50 mark that separates growth from contraction for the first time in nearly three years. New export orders tumbled to 45.6, the lowest level since February 2009, from October’s 48.6. The weaker-than-expected China PMI reading came one day after Beijing lowered banks’ reserve requirements by 50 basis points to try to ease credit strains.

Most economists thought China would hold off on easing credit conditions until December or perhaps early 2012, so the early policy shift suggested increasing concerns about sustaining growth. “It’s time to start reflating China’s economy,” said Qu Hongbin, co-head of Asian economics research at HSBC.

Bucking the trend for now, Indian exports actually rose in the last month, however GDP remained at 6.9 percent on the back of a dip in domestic demand. Furthermore, things are just not going right for the economy,  the rupee is weak, investors are nervous and business folk are livid about red tape. India’s troubles do not compare with the crisis of 1991, which spurred it to liberalise after decades of stagnation. But still, the government needs to lift confidence, and retail liberalisation could work like a bargain bag of yeast.

India’s PMI has stayed above the 50 mark for 32 months it  was 50.4 in September.

“Economic activity in the manufacturing sector continues to grow at a slower clip led by a deceleration in domestic orders,” said Leif Eskesen, economist at HSBC.

“Despite this, manufacturers still struggle to keep up with new orders and inflation pressures are not abating.”

The factory output index fell to almost a three-year low of 50.5 while the new orders index declined after a jump in October. Unfortunately, though, with the slowdown in global growth, exports are unlikely to be strong in future, making the Indian economy rely slowly on consumption as its driver of growth. Moreover, the data show that private consumption growth too has been decelerating, thus leaving its sole growth engine sputtering.

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