Dubai — The steady-to-growing Indian and Japanese economies will continue to be positive and beneficial to the UAE’s economy, experts at Bain & Company have revealed.
“With India, a robust to accelerating pace of growth may provide even more potential upside for increased trade volumes between India and the UAE. Part of India’s developmental trajectory will require moving towards energy-intensive manufacturing activities. As part of this transition, the Indian demand for energy may even outpace a relatively robust growth rate for the overall economy,” Karen Harris, director of Bain & Company’s Macro Trends Group, out of the New York office, told Khaleej Times.
“In the case of Japan, a return to positive overall economic growth will generally support the trend to above-trend growth in import demand for key trade goods, including oil and gas. Renewed export competitiveness in the Japanese industrial complex will also promote increased availability of Japanese manufactured goods at competitive prices, that will tend to suppress inflationary pressures,” she said.
According to the recent UN World Economic Situation and Prospects 2015 (Wesp) report, India’s growth is expected to improve to 6.3 per cent in 2016. It will be the country’s highest growth rate since the 2008-2011 period, when the Indian economy had registered a 7.3 per cent growth rate, the UN report revealed, adding that the economic growth had slowed to 4.7 per cent in 2012.
“India’s diverse and dynamic political system, especially the relatively strong role played by state-level governments versus the national-level, have enabled a wide variety of different governance models to be tested. In India, we do not necessarily see one single national entity on the move, but rather a portfolio of different states moving at different paces — some growing at extremely rapid rates and others tending towards steady,” Harris explained.
“Where Indian states have streamlined bureaucracy, clarified property rights and eliminated excessively time-consuming regulatory hurdles, growth has taken off. As these models of effective governance spread through imitation and experimentation among the states, we would expect India’s overall full potential growth rate to continue to remain favourable or even improve,” she added.
However, India is also a relatively early-stage developing economy susceptible to many global forces, she cautioned. Fluctuations in global investor sentiment, like fluctuations in investors’ risk appetites for emerging economies, will generate temporary headwinds or tailwinds to growth, particularly in the case of India where foreign capital plays an important role in funding growth-enhancing investments.
The Wesp report also revealed that the global economy is expected to grow at 3.1 per cent in 2015 and 3.3 per cent in 2016. These figures are higher than the 2.6 per cent growth recorded in 2014, where the pace of expansion has been moderate and uneven. The inflation for East Asia will stay around the recent levels of 23 per cent over the outlook period.
“The Japanese economy has moved impressively towards breaking its decades-long sleep, although it walks an extremely delicate balance while carrying a heavy load of sovereign debt,” Harris noted. “It bears reminding that though overall top-line growth in Japan has been sluggish to even negative over a long period of time, since the end of its boom years over two decades ago, Japan remains an incredibly wealthy and productive nation with underlying productivity growth that has roughly matched pace with the other major advanced economies of the world.”
She also pointed out that the balance between net producers versus net consumers in Japan is shifting gently towards the latter. “That subtle demographic shift makes this a particular opportune time to enact bold policies to break the deflationary trend that has plagued Japan for years,” Harris said.
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