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Rediff.com  » Business » OECD sees sharp slowdown for India

OECD sees sharp slowdown for India

January 13, 2009 14:29 IST
As the size of the economy rescue plans are growing bigger by the day in trans-Atlantic countries, the accelerating slowdown in economies the world over had taken deeper roots last year itself.

The Paris-based Organization for Economic Cooperation and Development (OECD) said its composite leading indicators (CLIs) "for November 2008 point to deep slowdowns in the major seven economies and in major non-OECD member economies, particularly China, India".

"The CLIs for India fell 1.2 points in November 2008 and was 7.6 points lower than in November 2007," noted the OECD, the think tank for industrialised countries.

The CLIs suggest "early signals of turning points in business cycles - fluctuations of economic activity around its long-term potential level".

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It focuses on turning points, or peaks and troughs, to provide an indication of short-term economic cycles.

In contrast with India, the fall in CLIs is bigger for China. China's CLIs decreased by 3.1 points in November 2008 and was 12.9 points lower than a year ago.

The OECD, which has already predicted protracted recession for its 29 member countries, said CLIs for the US fell by 1.7 points in November 2008 and were 8.7 points lower than a year ago while the Euro area's CLIs decreased by 1.1 point in November and stood 7.6 points lower than a year ago.

Industrial production data in the Eurozone countries suggest a sharp drop of 1.9 per cent for November, a development that would further accelerate the year-on-year
decline from October to November, analysts said.

As the slowdown is taking an ugly form with large-scale retrenchment and closure of companies, the German government has prepared ground to unveil several measures, including taking stakes in its ailing companies which have become insolvent due to the current credit squeeze.

The German Chancellor, Angela Merkel, is set to announce today a 50 billion euro package for two years as well as a new "Germany Fund" of about 100 billion euros to provide credit guarantees for companies to raise loans.

Merkel, who is to face elections this year, has already announced a 500-billion-euro package for its banks. Berlin announced last week that it wa taking 25 per cent stake in Commerzbank, the country's second largest bank which is caught in a major crisis.

Like the US, which has already announced over $1-trillion worth of rescue packages for its banks and a $30-billion rescue of its ailing car industry, the German government is expected to provide lifeline to its car companies that are already complaining about Washington's car subsidies.

If Germany extends support to car companies, France and Sweden will follow suit. However, the United Kingdom has refused any assistance to its car manufacturers, which include the Tatas, on the ground that it will not be healthy for competitive industries.

An HSBC strategist, Kevin Gaynor, told Financial Times that "investors now face the most dangerous part of the cycle as uncertainty over the economic outlook has actually increased as the raft of policy measures announced by governments might prove inefficient and ineffective in addressing the financial crisis and the deepening economic recession".
D Ravi Kanth in Geneva
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