What's going on?
India’s economy is likely to outgrow China’s for the first time in sixteen years, as countries around the world are showing signs of strong recovery from the global economic crisis. The IMF noted strength in the U.S. and U.K. economies with weakness in the eurozone, China and Latin America. Inflation worldwide is down and outlooks for emerging markets are lower than expected with the exception of India. The fall in energy prices this year will boost growth in oil importing countries, increasing the global output by potentially 1% next year.
What does this mean?
Lower oil prices and exchange rate changes have helped worldwide economic recovery. The U.S. is growing fastest amongst advanced economies at 3.1% with the eurozone only growing at 1.5% this year. China’s growth is expected to slowdown to 6.8% growth while India is now growing at 7.5%, a new shift between two of the world’s largest economies. More good news comes from the IMF predicting the probability of a eurozone recession this year declining from 40% in October to 25% now. The IMF is not predicting economies will recovery fully to normal growth rates, since many countries are facing aging populations and weak productivity growth, which would create lower rates of expansion.
Why should I care?
India overtaking China in its growth rate is a momentous shift in the growth of emerging economies. China is still growing fast and the government has taken steps to make sure that its slowdown has a soft landing. For people residing in China and India, these high growth rates will create numerous potential investment opportunities, as well as for foreign investors. Investors should pay attention to which sectors within China and India are experiencing the fastest growth to identify the best investment opportunity. Beyond sectors, U.S. and UK residents could invest in Chinese and Indian publicly traded companies which might get a boost as a result of the high growth rates.