The US financial crisis is likely to have a significant impact on emerging economies like India with the external trade in goods and services making up 45 per cent of the country’s GDP, an Assocham poll has said.
In the Assocham Business Barometer (ABB) survey of 319 chief operating officers and managing directors, 86 per cent respondents said growth in the Indian economy is not largely driven by domestic demand.
Any downturn in American consumer spending will have a direct impact on the European, Chinese and Japanese economies, with which India’s trade engagement is largely integrated, they said.
About 60 per cent of India’s exports go to the US, Europe, China and Japan which have seen export-led growth mostly influenced by high-spending American consumers.
The problem of weakening housing prices in US and the sub prime mortgage crisis are indicative of declining trend of aggregate demand and consumer spending. This could decelerate the overall growth of the US economy as consumer spending constitutes 70 per cent of America’s GDP, Assocham President Venugopal Dhoot said.
While only 23 per cent of the respondents felt the strong Asian growth would prevent any effect of a slowdown in the US, 76 per cent of them said a widespread downfall in the world economic growth is inevitable.
Almost 79 per cent of the CEOs felt the conditions in the Indian economy are poised for a slowdown. The sharp decline in the industrial growth in July to 7.1 per cent as against 13.2 per cent in same month last year is seen as an indication of deceleration in pace of economic expansion.