The World Bank is reigning in its initial forecasts of 2011 growth for East Asia, where the region as a whole is expected to grow less than previous estimates. Surprisingly, this slowing growth in the region will help India attract capital and clout, as the prospect for growth there now surpasses average regional estimates and even the Chinese growth rate next year.
India’s 2011 GDP is expected to grow at 8.7% by the official World Bank analysis, despite the total ex-China East Asian 2011 rate being downgraded from 8.0% to 7.8%. China’s is now expected to grow at 8.5% in 2011, revised down from 8.7% and contrasting a 9.5% expansion in 2010.
A net importer of goods, India has the ability to sustain itself by utilizing domestic demand as a driver for growth, where competing net exporting countries (such as China) are dependent on the global consumer. Much of Asia has benefited from the global downturn by increasing their exports, such as in South Korea, but India has maintained its growth in both the import and export arenas. Still, India has yet to tap the full capacity of export oriented growth, which many analysts expect may allow the economy to surpass current estimates.
The Indian Rupee has solidified as government spending slows and a boisterous recovery in the manufacturing industry continues to drive confidence in the economy. The stable currency is allowing the Indian consumer lower prices for foreign goods and fully supports the domestic demand for Indian products. Contrarily, most countries are devaluing their domestic currency to fight for export. In the short term, lower currencies may benefit exporting countries in Asia, but it will be the India’s of the world who benefit long term when the flight to strong currency quality brings capital and investment to the doorstep of the Indian economy.
China’s inflation rate jumped to the highest rate in two years last month rattled investors who fear the implication of a popping real estate bubble in the World’s most populous nation. India however has not seen such a dramatic rise in prices, making the economic potential more fairly valued and decreasing risks tied to high inflation.
India’s manufacturing sector and domestic consumer spending are serving it well as analysts expect India to outpace China in 2011 and World Bank reports are forecasting India and China to grow at the same 8.2% in 2012. There remain political threats to global stability, but India will beat out China given its proportionately stronger domestic demand in the event of future stresses on foreign consumers. With great potential for growth over the next two years, it’s now clear that World Bank analysts predict that India will overtake China’s GDP growth as soon as next year.