Rating agencies — optimistic about India, concerned about China

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Rating agencies have a positive view of the Indian economy, while China is caught in economic whirlwinds.

India inspires confidence: Last week, Morgan Stanley predicted that India would be Asia’s fastest growing economy in fiscal year 2022-23.

Quotation: “We have been constructive on India’s outlook, both from a cyclical and structural perspective, for some time. The recent round of strong data reinforces our confidence that India is well positioned to generate domestic demand alpha, which will be particularly important as weak developed market (DM) growth trickles down. on Asia’s external demand,” a note read.

Beautiful projections: The S&P Global India Manufacturing Index rose to 56.4 in July 2022, beating market expectations of 53.8.

  • Inflation hit an 11-month low of 6.7%.

  • Overall employment figures, a global concern, improved slightly.

  • In July, IMF expects India to grow 7.4% in FY23; World Bank, 7.5%; OECD, 6.9%; and AfDB, 7.2%.

  • Among the top rating agencies, only Nomura has a conservative view (4.7%). S&P Global expected 7.3%.

  • Fitch Ratings pegged growth at 7.8% in FY23 and an average of 7% between FY24 and FY27.

  • According to data aggregation platform Trading Economics, Indian household debt stood at 37% in December 2021, down from 34% a decade ago, but below the peak of 38.4%.

  • Motilal Oswal estimated non-financial corporate debt at 48.6% of GDP, the lowest in seven years.

Contributing factors: Over the past few months, Delhi has taken several initiatives – including commodity and commodity export restrictions – to control inflation and encourage domestic consumption amid growing uncertainties in the global market.

  • Hiring has increased at an extraordinary rate in the IT, telecommunications, banking and finance, and pharmaceutical industries.

  • E-commerce penetration has quintupled during Covid-19. On-demand hiring, warehousing and logistics are growing exponentially as a result.

Pan-Indian Growth: Growth activities are not limited to large cities.

  • As of March 2022, half of the approximately 66,000 recognized startups in India were from non-metropolitan cities.

  • These cities are experiencing a real estate boom. Tier 2 and Tier 3 cities like Raipur, Lucknow and Coimbatore saw 15% year-on-year growth in house prices last year.

China sweats: Its economic performance has been so dismal that, according to one PA report, the CCP has “stopped talking” about the 5.5% GDP growth target for this year.

Debt worries: President Xi Jinping failed to avert the current debt crisis.

  • According to JP Morgan, Chinese household debt soared to 62% of GDP last year, from 28% the previous decade.

  • Corporate debt stands at 160% of GDP.

  • As a trade surplus economy, China has amassed enormous wealth at the governmental level over the past three decades. But the high indebtedness of its households and businesses points to a serious flaw in the system.

Over-indebted financial system: Over the past two decades, 70% of household savings have gone into real estate, contributing a third of China’s GDP.

  • The $2.7 trillion real estate market is now in crisis, which is spilling over into other areas.

  • Nomura estimated that Chinese developers only delivered 60% of the homes they pre-sold between 2013 and 2020. This puts around 4% of total bank lending in China at risk.

  • China is therefore experiencing a sharp drop in sales.

  • According to S&P Global, around 20% of developers are at risk of insolvency. This is reflected in rising bond defaults which have topped $20 billion so far this year, up from $9 billion in 2021.

  • Real estate developers are at the top of the list of defaulters.

Impact on the labor market: “The most educated generation in China’s history was supposed to lead the way to a more innovative and technologically advanced economy. Instead, an estimated 15 million (1.5 crore) young people are out of work, and many are lowering their ambitions,” Time reported July 25, 2022.

  • Headline unemployment figures in China look comfortable at 5.5%.

  • The problem concerns young city dwellers (16-24 years old), where unemployment reaches 19.3%.

  • To make matters worse, 11 million (1.1 crore) new graduates will join the workforce this summer.

  • This lowers the salaries of new recruits.

Corrective action expected: Beijing has already announced a recovery plan for the infrastructure sector. It has the wherewithal to shell out more money, but will they risk another wave of overheating in the economy, or will they give restructuring a chance?

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