General Awareness Updates – October 2009

Economy & Business

Recession shrinks Global Wealth

The 2008 global recession caused the first worldwide contraction in assets under management in nearly a decade, according to a study that found wealth dropped 11.7 per cent to $92.4 trillion. A return to 2007 levels of wealth will take six years, according to a Boston Consulting Group (BCG) study that examined assets overseen by the asset management industry.

North America, particularly the United States, was the hardest hit region, reporting a 21.8 per cent decline in wealth firms’ assets under management to $29.3 trillion, primarily because of the beating U.S. equities investments took in 2008. Also hit hard were offshore wealth centers, like Switzerland and the Caribbean, where assets declined to $6.7 trillion in 2008 from $7.3 trillion in 2007, an 8 per cent drop. The study forecasts that wealth management firms’ assets under management will not return to 2007 levels, $108.5 trillion, until 2013, a six-year rebound.

Europe posted a slightly higher $32.7 trillion of assets under management, edging out North America for the wealthiest region, though the total wealth in the region dropped by 5.8 per cent. Latin America was the only region to report a gain in assets under management, posting a 3 per cent uptick from $2.4 trillion in 2007 to $2.5 trillion in 2008.

The number of millionaires worldwide shrank 17.8 per cent to 9 million, the BCG study found. Europe and North America were hardest hit in that regard, posting 22 per cent declines. The United States still boasts 3.9 million millionaires, the highest population on the globe. Singapore had the highest density of millionaires at 8.5 per cent of the population. Other countries included Switzerland, at 6.6 per cent, Kuwait, at 5.1 per cent, United Arab Emirates, at 4.5 per cent, and the United States, at 3.5 per cent.

Indian economy grows by 6.1 pc in Q1, against 7.1% a year ago

The Indian economy grew by 6.1 per cent during the first quarter of this fiscal, according to the data released by the Central Statistical Organisation (CSO), making India the second fastest growing economy after China. The country managed a reasonable economic growth of 6.1 per cent during the first quarter of the current fiscal despite the global financial crisis impacting manufacturing and certain services like hotels.

The Gross Domestic Product (GDP) growth rate during April-June 2009 at 6.1 per cent was higher than 5.8 per cent in the previous quarter, though it witnessed a decline when compared to 7.8 per cent economic expansion recorded during the corresponding period of the last fiscal. The Central Government and the Reserve Bank of India have been maintaining that the Indian economy will grow by six per cent growth with upward bias. If agriculture growth does not crash and this trend continues, growth this fiscal would be in line with the expectations of the authorities.

Mining, electricity among industrial sector, and financing among services sector posted higher growth of 7.9, 6.2, and 8.1 per cent, respectively, in the first quarter of this fiscal, against 4.6, 2.7, and 6.9 per cent a year ago. Construction and community services also managed good growth of 7.1 and 6.8 per cent against 8.4 and 8.2 per cent, respectively.

However, agriculture and manufacturing expanded at a slower rate of 2.4 and 3.4 per cent against 3.0 and 5.5 per cent, respectively. Growth in services like hotels, trade, transport, and communication was significantly lower at 8.1 per cent against 13 per cent.

Plan panel sees strong growth in H2; GDP may exceed 6.3%

The Planning Commission sees stronger economic expansion in the second half which could push up the growth rate for the current fiscal to beyond 6.3 per cent projected earlier by the panel.

“On the industrial front in the last couple of months there is sequence of good news. I am hoping that the second half of this year, that means from end of September up to end of March, you will see stronger growth than you did in the first half,” Planning Commission Deputy Chairman Montek Singh Ahluwalia said. “When we had full Planning Commission meeting on September 1, I had said our central assumption is about 6.3 per cent... but you know it could be little bit more,” he added.

Pointing out that the Indian economy, which too was hit by the global financial meltdown, has already stabilised, he said, “except drought which is affecting agriculture adversely ... we expect to see revival from the last quarter. The next six months will be better than the first six months of the current financial year”. The economy, which slipped from a high of 9 per cent to 6.7 per cent 2008-09 because of the impact of the global financial crisis, reported a growth of 6.1 per cent in the first quarter of the current fiscal.

Mr. Ahluwalia said that, “[We] never had contractions. At the moment economy is growing. There is no negative growth. I am not sure what the second quarter growth rate will be, because we have to see the effect of drought... however, it is too early to tell (about growth of economy in this fiscal) but I am saying 6.3 per cent is reasonable”.

The Planning Commission has recently revised the average annual growth rate of economy during the Eleventh Five Year Plan to 7.8 per cent from the earlier target of 9 per cent.

Plan panel expects GDP at 8 per cent for 2010-11

The Indian economy will be back on growth path with the GDP expected around 8 per cent in 2010-11, the Planning Commission said. The panel, in its presentation ‘Current Economic Outlook’ before the Prime Minister during the full panel meet, also projected the Gross Domestic Product (GDP) in 2011-12 to reach 9 per cent.

“We project growth of 8 per cent in 2010-11 and 9 per cent in 2011-12. This is optimistic but not impossible. If we have normal Monsoon in 2010-11, we can expect a strong rebound in agriculture next year,” the plan panel paper said.

The panel also said the decline in exports would slow down after 2010 when the developed economies would return to positive growth. “Exports would also recover as industrialised countries return to positive growth of one per cent in 2010 with further acceleration in 2011”, it said. India’s exports are on a down slide since October 2008, due to the global slump in demand. In 2008-09, the country’s overseas shipment grew by meagre 3.4 per cent to about U.S.$168 billion compared to the same period last year.

India to pump in $10 bn in IMF notes

India will invest U.S.$10 billion in International Monetary Fund notes. The IMF has welcomed the decision of India to invest up to U.S.$10 billion (around Rs.50,000 crore) in IMF notes and said this reflects New Delhi’s commitment to multilateral cooperation.

“I welcome the announcement by India of its intention to support the Fund’s lending capacity through the purchase of up to U.S.$10 billion worth of IMF notes,” IMF Managing Director Dominique Strauss-Kahn (left) said.

“This investment will help underpin the international financial system by ensuring the Fund has adequate resources to meet the financing needs of its membership, demonstrating the commitment of the Indian authorities to multilateral cooperation,” Mr. Strauss-Kahn said.

Following a meeting of BRIC (Brazil, Russia, India, and China) nations in London, Indian Finance Minister Pranab Mukherjee said that India has decided to invest up to U.S.$10 bn of its reserves in notes issued by the IMF. This is part of a total of U.S.$80 bn, which the four BRIC countries would invest into the IMF. Out of the amount, China would be pumping in U.S.$50 bn.

Entertainment giant Walt Disney is acquiring Marvel Entertainment in a shares and cash deal valued at $4 billion. The deal means Disney will take over ownership of 5,000 Marvel characters, such as Spider-Man and the X-Men. Other Marvel’s characters include Captain America, the Fantastic Four, and Thor.

The Japanese economy has grown for the first time in over a year, and is now officially out of recession. Japan has now joined other nations such as Germany and France in emerging from recession. Latest figures show the world’s second largest economy expanded by 0.9 per cent in April to June, returning to positive growth for the first time in five quarters.

The growth has been attributed by observers to a huge government economic stimulus package. The economy had contracted by 3.1 per cent in the first quarter and by 3.5 per cent in the fourth quarter of 2008. Japan had plunged into recession in the second quarter of 2008 as a severe global downturn crushed demand for its cars, electronics and other goods.

Painting a grim picture on cross-border investments, the United Nations Conference on Trade and Development (UNCTAD) has said global Foreign Direct Investment (FDI) flows will shrink by 30 per cent this year and recover only marginally during the next year.

“FDI inflows will fall from about U.S.$1.7 trillion in 2008 to below U.S.$1.2 trillion in 2009. Recovery is expected to be slow in 2010, reaching no more than U.S.$1.4 trillion, but gathering momentum in 2011 to approach U.S.$1.8 trillion,” the UNCTAD said in a report.

The UNCTAD said that a major contributing factor to the decline in global FDI flows has been growing divestments by transnational corporations worldwide. Since mid-2008, these divestments, which can take the form of repatriated investments, reverse intra-company loans, or repayments of debt to parent firms, have exceeded gross FDI flows in a number of countries, it said. The report said FDI inflows declined in the developed countries, where the financial crisis originated, while in developing countries and the transition economies of South-East Europe and the Commonwealth of Independent States (CIS) continued to rise last year.

India ’s exports slid for the 11th straight month in August by 19.7 per cent to U.S.$14.3 billion owing to the continuing slump in global demand. In August 2008, the exports were U.S.$17.8 billion. In April-August this fiscal, the overseas shipment contracted by 31.3 per cent to U.S.$63.9 billion from U.S.$93.1 billion in the same period last year.

For the first five month of 2009-10, three sectors – rice, tobacco, and fruits and vegetables – have shown positive growth. Only in August, segments like rice, tobacco, fruits and vegetable, marine products, iron ore, man-made yarn and fabrics, some minerals, like coal, and ready-made garments have shown positive growth.

Sectors which continue to be in deep trouble are leather, gems and jewellery, drugs and pharmaceuticals both in monthly and cumulatively for the last five months. The exports of gems and jewellery in August dipped to U.S.$2.2 billion from U.S.$2.9 billion in last year. In April-August this fiscal, the gems and jewellery exports contracted to U.S.$9.7 billion from U.S.$14.6 billion in April-August last fiscal.

Leather exports in the month under review declined to U.S.$0.28 billion from U.S.$0.35 billion in the same month last year. Engineering goods exports was dropped to U.S.$2.6 billion from U.S.$3.8 billion. In April-August this fiscal engineering goods shipment shrank to U.S.$13.1 billion from U.S.$19.8 billion.