Maybe De-Coupling Isn’t Dead

It seems hard to believe that anyone is still looking forward to growth. But some of the recent news out of Davos suggests there’s optimism still around–though it is of a very particular sort. The Chinese are claiming that a combination of consumer handouts and some additional stimulus can get their growth rate back up to 8%. If 6.8% is their idea of an economy in need of stimulus, it’s hard to imagine that they would or could be happy with 8%, or whatever the real number is that they’re calling 8%.

Meanwhile, in India, there’s something bordering on confidence. Here’s Kenneth Rogoff of Harvard writing on Dealbook’s Davos Blog:

But the real reason my Indian companions were so cheerful was a strong sense of relief that they were living far from the epicenter of the recession, insulated by their country’s size and still-comparatively stringent restrictions on international capital flows. “Thank heavens for the strong regulatory framework we have in our financial system,” one leading provider of soft consumer goods said.

Of course, many outside commentators view India’s financial regulation as repressive, effectively forcing banks to hold massive quantities of government debt. Of course, given how many of the United States financial institutions are doing that voluntarily right now, and that the U.S. public-debt-to-GDP ratio may rival India’s in a few years (according to Reinhart and Rogoff’s research), there are fewer critiques coming from abroad right now.

Walking around the room and polling quite a few people, I came up with a “Davos India dinner consensus” forecast of 6 percent to 7 percent for India’s 2009 growth, a remarkable figure in a year where the most developed countries are expected to have negative growth, and where world growth will struggle to reach 1 percent.

My own guess is that despite the fact the fact that India is relatively closed, things won’t be quite that good, and a growth rate of 4 percent 5 percent is more realistic. Everyone agreed that direct foreign investment into India had slowed dramatically, removing a key source of equity capital in the Indian economy.


Wen Looks at Fresh Chinese Stimulus
By Lionel Barber, James Kynge and Geoff Dyer in London
Financial Times; February 1, 2009

Rogoff: The Exhuberance of India
Dealbook; January 31, 2009

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