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‘India to be big contributor to global growth in 2015’

Despite the recent volatility in international markets on the backdrop of global growth concerns, Gunit Chadha, Co-Chief Executive Officer – Asia Pacific, Deutsche Bank, expects the global growth to move from 3.3 percent this year to 3.9 percent in 2015.

The International Monetary Fund (IMF) and World Bank, which continue to remain cautious on global growth, have recently revised their projections downwards.  

In an exclusive interaction with CNBC-TV18’s Shereen Bhan, Chaddha said that he expects seven out of 10 big nations to grow faster in 2015 relative to 2014. He thinks US will be the biggest driver of that growth and sees India to be a big contributor, growing from 5.50 percent to 6.50 percent into next year. However, he expects Europe to struggle, growing at about 1 percent in to 2015.

Below is the interview of Gunit Chadha’s with Shereen Bang on CNBC-TV18.

Q: I remember the conversation that we were having exactly the same time last year. A lot has changed at least in India. There has been a dramatic difference in mood, the problems that we were talking about then whether it is current account deficit (CAD) or the fiscal deficit, have been contained to a significant degree but I will not talk to you about India just yet. Let me start by talking to you about the world. What is your own take on the recovery in the US, the recovery in Europe at this point in time?

A: I remember our conversation a year ago and lots has changed, certainly as far as India is concerned. But let us start with the world. It’s clearly been six weeks of great volatility having come back in the markets right. Now whether that started to happen because a weak German Data, whether it was IMF’s more sober report on world growth I mean there were virtually pricing in a recession in Europe with a 30 percent probability. I was in US at time of the IMF meet and I can tell you people walked in happier and walked out feeling much more concerned whether world growth will be in to 2015.

However we do believe that 7 of the 10 largest countries globally will grow faster in 2015 relative to 2014. We think US will be the biggest driver of that growth. We think US grows from sub 2.50 percent this year to north of 3.50 percent in 2015. We think India will be a big contributes to growing from 5.50 to 6.50 percent into next year. China we don’t believe there is a hard landing out there even the growth comes off, Europe will struggle. Europe will grow but will struggle growing at about 1 percent in to 2015.

Q: Given the scenario that you have just painted, the big one of course that you don’t expect a hard landing in China because at this point in time everybody is talking about the Chinese flu and how that is impacting sentiment across the world. You believe the US is going to see a strong recovery, Europe may perhaps continue to be muted, India and other emerging markets are perhaps going to kick in, geopolitics and the risks associated to geopolitics look a little bit less concerning as opposed to a couple of weeks ago then what is the big trigger as far as this global risk aversion is concerned?

A: I think because if you go back six weeks, the markets were pricing a Goldilocks scenario where every geopolitical event was being brushed aside whether it was the Middle East crisis, whether it was Russia-Ukraine, whether it was tension building up in South China sea, whether it was tension in Israel-Palestine.

Q: This is a bit of a reality check at this point of time?

A: I think it is a bit of a reality check. We do believe as I said, as the key driver of global growth if US grows into 3.5 percent next year, our view, Deutsche Bank’s view is that global growth will move from 3.3 percent this year to 3.9 percent in 2015. So we remain constructive though with the bias on the downside of where that growth will be as a consequence of geopolitical events which could happen.

Q: So geopolitics is the big downside risk that you are factoring in at this point in time?

A: Yes, I think if we have to pick the top five risks, geopolitics would be one, China hard landing that is not a baseline scenario, that would be second. Europe recession could happen, that is not our view but it could happen as it is both — structurally adjusts itself and at the same point of time seeks to grow within its boundaries rather than only have an export led growth and finally a disorderly US interest rate hike but we can talk about that.

Q: Let us talk about the US interest rate hike because that is exactly what I wanted to touch base with you on. What is the view at Deutsche Bank at this point in time given the kind of economic data that we are seeing coming in from the US given the commentary that is coming in from the Fed, which seems to suggest that it is unlikely to be a disorderly move towards an interest rate hike at this point of time?

A: That is what we would hope and that is what we would expect. Our view is that if US growth gets as strong as we think it will into 3.5 handle, we think the rate hike will come in towards the second half of 2015. Now we saw what a year ago, the US taper did to emerging markets now since the emerging markets frankly have strengthened their reserve positions, they have taken the right monetary policy actions, they have narrowed the fiscal and the current account deficits but still it is an elephant out there and it is important that that is an orderly process of rate hikes into second half of 2015 and as a result, the vulnerability of emerging markets is more muted this time around which is the way we think it will be.


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