EIU drops 2013 growth forecast for India to 5%, holds to 7.5% for China

LONDON – In an update of its Global Forecast, the Economist Intelligence Unit has again lowered its 2013 GDP forecast for India, from 5.5% to 5.0%. It is maintaining its 2013 GDP forecast for China at 7.5%, but says this will slip to 7.3% in 2014 and eventually to 6.3% in 2017 as China’s economy continues to mature.

The EIU says emerging markets with large deficits and weak banking systems, notably India, are continuing to struggle in an environment of reduced liquidity. It says India’s currency, although stronger now, has depreciated sharply since May, inflation is nearly 10%, and Indian companies and banks have large external debt repayments which they are struggling to refinance. Local banks are also suffering from a rise in non-performing loans.

After a difficult first half of the year, China’s economy is stabilising, industrial production, fixed asset investment, and exports have ticked higher in recent months as business confidence has improved, and the Government has accelerated spending.

It says business confidence is improving in the Eurozone, especially in Germany, which is leading the recovery. “Conditions are also improving in the UK, and we are raising our GDP forecast for 2013 and 2014 to 1.4% and 1.8% respectively.”

On the United States, the EIU says it continues to believe that the Fed will reduce its stimulus in a gradual fashion, reducing – but not eliminating – market turmoil, and allowing most economies to adjust to the shift in capital flows. www.eiu.com (ATI).