Off late there has been a lot of concern all over the world concerning the impending US Recession. Many naysayers have predicted that when US falters the world around crumbles. Fortunately however this time that is far from true. The recent sub prime mortgage crisis has caused US Banks to seek capital injections from Sovereign wealth funds. It is pertinent to note that all the major US banks were bailed out by Asian funds predominantly from Singapore, Dubai and China. That is a refreshing break from the earlier days when Asia would seek alms from the Almighty US. Even as the world gets more integrated every day the impending US recession will prove that the world isn't exactly flat but round and wrinkled. This economic downturn will prove that when America sneezes, Asia doesn't catch a cold. Yes Asia (notably India & China) will be affected but not as severely as it has been made out to be.
Heading for the Rocks
To elucidate this point, let's scratch the key attributes of the US market. US market had always been a consumer market. The Chugging US Economy thrived on consuming goods rather than producing them. This classic dichotomy can be best illustrated by looking at a few data points. Consider petroleum, the world's biggest consumer market remains the US. 20.6 million barrels a day, while second place China even with a billion and more people has a consumption of 6.9 million barrels a day. India uses 2.6 million barrels a day. Americans bought 16.9 million cars and trucks last year, India at 1.1 million. Take food, energy or services America remains the worlds biggest consumer market. While the world over people made money by feeding this behemoth, America made its money simply by consuming them. So when there is a recession this glutton loses some appetite and the grocers in the world market have no body to sell goods to. This is the dynamics of the world market.
However the landscape is changing, China recently overtook America as the biggest consumer of steel, Iron and Zinc. If India continues with it's on again and off again reforms, it could become a significant market for the world supermarkets. Nations in Eastern Europe, Central Asia and East Asia are now building an appetite that can re route the supply chain to some extent. The big picture in this case is that if the much touted US recession arrives then India or China could lose a big client to sell goods to but can make up this loss by browsing the world market for other buyers. This is what is called decoupling. Asia is trying to decouple from the US at a peripheral level. China has generated so much internal demand that it has little to worry about a shrinking demand from US. India to some extent is still dependent on it's IT exports and forex from MNC and will feel the pinch.
Who has to lose sleep ?
This may not be the best of time for Dalal street. As naya investors be wary of companies that relies solely on US exports. The US Dollar has not bottomed out yet and if RBI does not intervene you will see INR appreciating further vis-a-vis US Dollar. That may not be good news for Exports but as they say necessity is the mother of invention. Japan had the same dilemma in the 70's and the world commentators predicted Japans Cremation. Japan simply continued to play to it's strength and what proceeded later is history. The Knowledge exporters from India will have to urgently scout for other customers to replace this consumer behemoth. If India Inc manages it, happy times are here again. As the popular adage goes, today's problems come from yesterdays solutions !
Heading for the Rocks
To elucidate this point, let's scratch the key attributes of the US market. US market had always been a consumer market. The Chugging US Economy thrived on consuming goods rather than producing them. This classic dichotomy can be best illustrated by looking at a few data points. Consider petroleum, the world's biggest consumer market remains the US. 20.6 million barrels a day, while second place China even with a billion and more people has a consumption of 6.9 million barrels a day. India uses 2.6 million barrels a day. Americans bought 16.9 million cars and trucks last year, India at 1.1 million. Take food, energy or services America remains the worlds biggest consumer market. While the world over people made money by feeding this behemoth, America made its money simply by consuming them. So when there is a recession this glutton loses some appetite and the grocers in the world market have no body to sell goods to. This is the dynamics of the world market.
However the landscape is changing, China recently overtook America as the biggest consumer of steel, Iron and Zinc. If India continues with it's on again and off again reforms, it could become a significant market for the world supermarkets. Nations in Eastern Europe, Central Asia and East Asia are now building an appetite that can re route the supply chain to some extent. The big picture in this case is that if the much touted US recession arrives then India or China could lose a big client to sell goods to but can make up this loss by browsing the world market for other buyers. This is what is called decoupling. Asia is trying to decouple from the US at a peripheral level. China has generated so much internal demand that it has little to worry about a shrinking demand from US. India to some extent is still dependent on it's IT exports and forex from MNC and will feel the pinch.
Who has to lose sleep ?
This may not be the best of time for Dalal street. As naya investors be wary of companies that relies solely on US exports. The US Dollar has not bottomed out yet and if RBI does not intervene you will see INR appreciating further vis-a-vis US Dollar. That may not be good news for Exports but as they say necessity is the mother of invention. Japan had the same dilemma in the 70's and the world commentators predicted Japans Cremation. Japan simply continued to play to it's strength and what proceeded later is history. The Knowledge exporters from India will have to urgently scout for other customers to replace this consumer behemoth. If India Inc manages it, happy times are here again. As the popular adage goes, today's problems come from yesterdays solutions !
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