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Unpleasant Forecasts

Omkar Goswami

Some readers of this column have e-mailed me to make another set of forecasts — like the ones I made in early 2008. I went back to those forecasts to find that I was right for four out of eight (falling US growth, falling Euro zone and UK growth, the prevalence of a scary word called ‘sub-prime’ throughout 2008, and China not drastically revaluing its currency); was directionally correct for a fifth (slower Indian GDP growth); and plain, dumb wrong for the other three (crude oil fell to well below my floor of $ 85 per barrel; the damn US dollar actually strengthened as everyone exited everything to hold on to treasury bills; and commodity prices crashed).

Should I be foolhardy and make another set of forecasts for 2009, I asked myself? Tired as I am of the cautious “one the one hand… but on the other” expositions of some of my fellow economists, I said to myself, “Better a Quixotic fool in search of windmills, than one who, by saying nothing, never has to admit any wrong”. So, readers, here goes once again.

• Forecast 1. This has to do with the US economy, and I’m fairly sure that I’ll be correct on this one. In 2009, notwithstanding President Barack Obama’s revival package, US real GDP growth will fall by anything between 1.2 per cent and 1.4 per cent. In other words, something between $170 billion and $200 billion of goods and services will disappear from the United States of America. Not counting other collateral damage.

• Forecast 2. Euro zone and UK GDP growth in 2009, for which I’d give myself 80% probability of being right. Euro zone GDP will fall by somewhere between 1.3 per cent and 1.6 per cent for 2009 — and that’s another $190 billion to $230 billion of goods and services going off the table. Great Britain is in a right royal mess. Nobody expects any turnaround in the near future. My prediction is that the UK will see real GDP fall by 1.6 per cent to 1.8 per cent in 2009.

• Forecast 3. This one concerns India’s GDP growth for 2008-09 and 2009-10. The former is somewhat easier to get a fix on; the latter is more nebulous. My bet is that our GDP growth for 2008-09 will be under 7 per cent — more like 6.7-6.8 per cent. It could have been worse had we not achieved 7.9 per cent growth for April-June 2008, and 7.6 per cent for July-September. Forecasting growth for 2009-10 is tricky. Even so, here is a very tentative number: somewhere between 5.5 per cent and 6 per cent. Don’t pin me on this one as yet.

• Forecast 4. The combined fiscal deficit in 2008-09, including various off-balance items, will soar to over 9.5 percent of GDP — roughly 5.5 per cent on account of the centre and another 4 per cent because of the states. I also expect it to get worse in a milieu of the chaotic non-governance that may well characterise 2009-10.

• Forecast 5. Together, the Congress and the BJP will not win 270 Lok Sabha seats in the 2009 election. That is, they will not succeed in collectively cornering even 50 per cent of the seats. Be prepared, then, for an even more fractured and fractious coalition government, as political parties which win even half a dozen seats will demand their pounds of flesh for supporting whichever coalition that meets their greed. Much cash will change hands. And many lucrative cabinet berths will be promised to new found allies.

• Forecast 6. Unless she makes a real hash of it, Mayawati will hold the aces. Even if the Bahujan Samaj Party wins 35 seats — which looks like a ‘done deal’ — she will call the post-election shots. My guess is that 2009 will be her defining moment in the national arena, and she may actually win above 50 seats. If that were to pass, the Congress, the BJP and the so-called Third Front will all woo her like never before. My instinct is that she will not immediately jump at premiership. Instead, Jayalalithaa like, she may support a government only to destabilise it at an appropriate time, and create conditions for even greater consolidation of her party in the centre.

• Forecast 7. With the fiscal deficit widening in 2008-09 and 2009-10, I can’t see how real interest rates will remain benign and low for all of the next 18 months. Government’s pressure to finance a growing deficit will eventually force higher interest rates — more than what we are hoping it ought to be.

• Forecast 8. Forget about any major stock market rally. I will be very surprised if, on a consistent basis, the BSE-Sensex remains above the 14,000 mark for nine months of calendar year 2009.
now, readers of this magazine are aware of the twists and turns of the Satyam saga. It’s like Akira Kurosawa’s 1950 film, Rashomon, where a woodcutter and a Shinto priest re-tell mutually contradictory stories about a woman, her dead samurai husband and a bandit as they wait out a rainstorm in a ruined gatehouse — leaving the viewers to determine which, if any, is the truth.

Published: Business World, February 2009


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