Daily Economic Comment:

22.9.2009

India and China are primarily on the watch list of global investors for two reasons. One - they are growing at the fastest rate compared to other large economies in the world. Two - they have what can be called a 'demographic dividend' i.e. a larger population in the working age group. While in the first case China scores over India, it is vice versa in the second. However, what is probably getting neglected is the fact that not this entire demographic dividend is being put to optimum use.

There is little doubt left that Asia is going to be the economic engine that is going to drive the world on its way out of the recession. The latest confirmation comes from the Asian Development Bank (ADB), which has strengthened its economic forecast for the region. As per Bloomberg, ADB expects Asia (excluding Japan) to grow by 3.9% in 2009 and 6.4% in 2010. China is expected to grow at 8.2% this year while India will clock in at 6%.

The forecast does not mean that Asia will be able to pull off the growth on its own. Given the export oriented nature of most of the Asian economies, it is crucial that the US and Europe start recovering. Moreover, it must be remembered that Asian policymakers have pumped in huge stimulus packages into their economies and it is vital that they get their exit strategy right. If they wind up the packages too early, GDP growth rates might be hit. If they are too late, we'll be staring at runaway inflation and asset bubbles.