Merrill Lynch has come out with the last issue of its monthly newsletter, The Global Economy. It proposes a new international economics publication, which will begin in late summer or early fall.

The last issue notes developments in various regions of the world, and is generally optimistic on developments over the rest of the year. But the outlook for South Asia is pessimistic.

"The outlook for South Asia is clouded by the regional currency crisis", says the report. "Generally, growth throughout the year will be slower this year than last", it notes.

The report notes that prospects for 1998 depend on how well governments cope with the fallout from Thailand's problems and the extent to which foreign capital still flows into the region. "Our view is that the currency devaluations can be managed, and that growth in 1998 will show a pick up", says the report.

The report is optimistic on India. It revises an earlier 20 per cent export growth projection downward to 12 per cent growth in 1998 (this would follow a 18 per cent average growth rate for the previous three years). Exports have grown at only four per cent in 1996-97. Merrill Lynch expects export growth will rise in financial year 1997-98 due to likely rise in world trade growth. Exporters' associations are looking for a seven per cent depreciation of the rupee, which, says the report, is unlikely.

The report also projects an improvement in credit offtake in the second half of the year, thanks to a lagged effect of a decline in interest rates. Interest rates have been declining since October 1996 due to easier credit policy of the Reserve Bank of India, notes the report. It cites a 50 basis points decline in prime lending rates after the April monetary policy and a further 50 basis points decline after the June policy. Continued monetary easing from the RBI has so far failed to boost credit growth which continues to lag at about 10 per cent year-on-year growth.

Foodgrain production is estimated to have grown by six to seven per cent in 1996-97 against a previous estimate of four per cent growth. Harvests for 1997-98 are also expected to be good due to normal monsoon rains, says Merrill. The report has revised upward the agricultural growth projection from two per cent to three per cent.

The report does not, however, examine India's currency profile, although it says that the key to South Asian growth this year will be how governments in the region will battle the problems arising out of the Thai baht devaluation. An obvious reason is that in India, the currency has reacted very differently. Due to a sudden spurt in foreign exchange inflows largely through external commercial borrowings, the rupee has actually depreciated.The last issue of Global Economy is in general optimistic. It says that growth rates in Europe, Asia, and Latin America will increase in the year ahead. The one notable exception to this forecast is the US, where following a period of rapid growth, Merrill predicts slower growth.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.