To what extent will petrochemical industry be affected as economic growth in India, China to be weaker than anticipated

Gross domestic product (GDP) growth in China has been projected to slow sharply to around 4-6% from around 9% this year. Given the current economic meltdown and the conditions of other economies, a 6% GDP growth is being viewed by many as strong by world standards, but it will be below the trend. It will be the slowest annual GDP growth in China for a decade. Taking into consideration China's size, a 7% GDP growth is a minimum. China's growth has principally depended on strong global demand, which in turn is dependent on the robust health of its major trading partners. Hence the economy will be deeply impacted by shrinking exports. Exports will continue to decline amid a shrinking overseas demand and waning consumption unlikely to rebound in a short period amid the economic crisis. For 2009, Chinese authorities are trying to boost growth to atleast 8% growth with announcement of a US$583.94 bln fiscal stimulus package. However, it remains uncertain whether the announced package will be able to achieve the targets, as several experts believe that the boost will finally begin to have an impact sometime in the second or third quarter of next year. The International Monetary Fund (IMF) has predicted slowdown of economic momentum in China next year, estimating around 5% growth next year. As per ICIS, official customs showed China registered a 2.2% yoy decline in November exports, the first drop in 7 years. Chemical materials production declined 3.3% in November from a year ago levels, the chemical fibre sector declined 5.3%, based on data from the National Bureau of Statistics of China. The slowdown in economic growth will have a direct impact on the consumption of raw materials like petrochemicals. Infrastructure and retail sectors in China could take a big hit in 2009 if GDP growth slows dramatically. As per the country's Home Minister, India is nowhere near recession though it has been impacted by the global economic meltdown. Interestingly, India has been facing inflation since April due to the rising international prices of crude, metals and foodgrains. The scenario is expected to improve as these prices are inching downwards. The government is trying a balance between growth and controlling inflation and was biased in favour of growth, leading to announcement of a stimulus package earlier this month. A package to sustain economic growth that includes an excise duty cut of 4%, and spending an additional Rs 20,000 crore on infrastructure projects has been announced. Even if industrial growth continues to remain weak, the growth rate of India's GDP is most unlikely to turn negative since the services and agriculture sectors are likely to continue to grow. While the exact effects of the slowdown of US economy are difficult to quantify, it is expected that there may be some moderation in India's capital flows and in the growth of exports. India's foreign exchange reserves have fell below US$250 bln from over US$300 bln at the start of 2008-09. Though overseas operations of some banks have been taken a hit in derivatives, no public sector bank with overseas operations has reported credit losses till September 30. Excise duty collections in November fell 15% from the same month in 2007, indicating industrial output could end up negative for the second successive month. The index of industrial production (IIP) for October was 0.4% down from October 2007, while excise duty collections were 8.7% down on a year-on-year basis. Customs duty collections too fell by 0.8% in November 2008 against the same period last year. The growth in service tax collections has also fallen sharply in October 2008 to 15.9% as against 30% plus till August 2008. Employment outlook stands at 18% for the first quarter of 2009 - Despite this growth projection, there will be a steep decline in actual employment opportunities (calculated in percentages) compared to 2008. The steepest fall could be in the West with 29% less jobs created, followed by South (27%). Industry sectors will show maximum growth during Q1-2009. The strongest sectors will be mining, construction and services, where job growth could be as high as 23%. Sectors such as transportation and utilities and retail may show a much modest growth at 12% and 11%. The steepest decline of 33% has been anticipated in the transport and utilities sector, whereas mining/construction sectors which promise to hire the most next year have also seen a fall of 31%. As 2008 entered its final month, predictions of where the world economy is heading turned dire. The World Bank projected world output to grow by a mere 0.9% in 2009 (compared with 2.5% in 2008 and a high of 4% in 2006) and world trade to contract by a significant 2.1% (compared to positive rates of growth of 6.2% in 2008 and a high of 9.8% in 2006). UN's World Economic Situation and Prospects 2009 estimates that the rate of growth of world output which fell from 4% in 2006 to 3.8% in 2007 and 2.5% in 2008 is projected to fall to -0.5% in 2009 as per its baseline scenario and as much as -1.5% in its pessimistic scenario
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