But while global demand is coming off, the key question is will it slow as much as the current bearish sentiment believes it will? Currently, the market is pricing in a 64 percent probability of the US policy rate in January 2020 being at the same level as it is today, with about a 26 percent probability of a rate cut. The US Fed, on the other hand, is still pencilling in two rate hikes in 2019, apart from continuing with its balance sheet contraction, which means it believes there’s little threat to growth. So who is right about US growth and consequently US interest rate hikes -- the US central bank or the markets? The IMF and the OECD have lowered their growth forecasts for 2019, but it’s not a huge cut. … [Read more...] about Opinion | Economic outlook for 2019: Will the elephants in the room turn out to be mice?
The authors point out that the national data on gross domestic product (GDP) have limited coverage of the informal sector. They, therefore, used a new household survey of employment and satellite data on human-generated nightlight activity to measure demonetisation's effects at the district level. Their data captured both formal and informal sector economic activity. They say their results point to the likelihood of an absolute decline in economic activity at the end of 2016 not captured in official statistics. They also point to 'economically sharp, statistically highly significant contractions in areas experiencing more severe demonetisation shocks. The effects on real economic activity peak in the period immediately following the announcement and dissipate over the next few months as new currency arrives.' The difference in the impact on growth between the most affected and the least affected districts, or the ones that received adequate cash promptly and the ones that didn't, is … [Read more...] about Quick Take | Demonetisation led to 2 percentage point drop in GDP, says top US research firm
The Fed's median projection is now that the Fed Funds rate will be 2.9 percent at the end of 2019, instead of 3.1 percent in the September projection. US real GDP growth is expected to be 2.3 percent in 2019, down from 3 percent this year. In September, the Fed had guided for 2.5 percent US growth in 2019. The Fed's projection of the unemployment rate has been pushed up a little and its prognosis of the inflation rate has been pushed down slightly. … [Read more...] about Quick Take | US Fed Chairman refuses to play Santa to the markets
Others say his famous speech on the independence of the RBI that so rattled the government was the canary in the coal mine. That makes him a canary, but it’s not known whether he sings like one at monetary policy meetings. Others believe that, given what the government thinks of him, he is most likely a sitting duck. On the other hand, the whole controversy may well be water off a duck’s back. Either way, he’ll be a duck. … [Read more...] about Opinion | Bird Watching at the Reserve Bank of India
What exactly is a ‘development state’? Simply put, it is the hugely successful model of state-directed development seen in the East Asian countries, many of which went from poverty to prosperity within a generation or two. The government plays a big role in this transformation, putting in place the policies needed for rapid capital accumulation and in guiding the private sector to achieve the objectives set by the state. It is in contrast to the free-wheeling capitalism of the US or the UK. … [Read more...] about Opinion | Niti Aayog wants to make India a development state, but it’s a tall order