India's exports may falter due to global economic turmoil: FICCI

A survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) in the aftermath of the US economic downgrade revealed that there would be a slip in the consumption demand overseas.

"A majority of the respondents feel that the current trend of high export growth will not be sustained in the months ahead. There is significant apprehension about the global economic recovery, which in turn is expected to impinge on consumption demand," said a statement from FICCI.

"The sovereign debt crisis in Euro zone, weakness in the US and moderation of economic activity in China may significantly affect the level of external demand. This could be detrimental to the recently gained momentum in India's exports performance as these economies are India's major trading partners," it added.

India has been reporting robust export growth in the current financial year. June figures showed a 46 percent rise in exports at $29 billion. For the quarter ended June 20, exports have risen 45.7 percent to $79 billion. Therefore, the recent slowdown in key economies which are important export destinations for India, is not good news. Add to that the rising cost of credit because of incessant rate hikes by the Reserve Bank of India.

"The outlook for exports is also tempered on account of factors such as rising interest rates in India, rising raw material prices and rising cost of oil. The closure of the
DEPB scheme by end September 2011 has also been cited as one of the factors that would undermine export growth going ahead," said FICCI.   

DEPB is an incentive scheme for exporters. The FICCI survey also projected that the US economy would grow by about 2.5 percent in 2011, which is lower than the IMF prediction of 2.8 percent as demand would remain weak from both consumers and businesses and because of a moderation in government spending.

The survey respondents also felt that the Euro area could grow by about 1.9 percent in 2011, but there would be disparities in the growth rates of individual economies in the Euro zone.

Western Europe is estimated to grow at a modest 1.5 percent in 2011, but with significant variability.  Germany, the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) along with Benelux countries (Belgium, the Netherlands, and Luxembourg) are expected to perform at the higher end - above 2 percent - while the UK and France are likely to see growth in the range of 1.5-2 percent due to budget cuts and less exports.

Most of Southern Europe and Ireland are expected to see growth of less than one percent or may even contract. The lingering impact of tsunami, earthquake and the nuclear crisis is expected to lead to a contraction in the Japanese economy. Its growth rate is projected to fall to a negative 0.5 per cent in 2011.

With regard to China, the survey respondents opined that growth in 2011 would moderate only slightly to about 9.5 percent as the Chinese economy settles onto a gradually slowing growth trend.

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