Advertisement
India
Opinion
Nicholas Spiro
Nicholas Spiro

Macroscope | China’s economic slowdown: why India isn’t about to pick up the slack

  • As China’s prospects darken, a bullish narrative is growing that India could become the biggest contributor to global growth
  • But this might be wishful thinking, given that while India has a large and youthful population, its labour force participation rate is worryingly low

Reading Time:3 minutes
Why you can trust SCMP
18
Customers buy firecrackers at a shop ahead of Diwali, the festival of lights, in Chennai on November 5. Given that India makes up 3 per cent of global economic output, compared to 18 per cent for China, talk of India becoming the world’s next growth engine is premature. Photo: AFP
Nicholas Spiro
For Morgan Stanley, this is India’s decade. In a report published in October last year, it made a persuasive case for investors to treat the confluence of domestic and global forces powering India’s economy and capital markets as the next big thing.

Morgan Stanley said that an “economic boom fuelled by offshoring, investment in manufacturing, the energy transition, and the country’s advanced digital infrastructure” would turn India into the world’s third-largest economy and stock market by 2030. “With India set to drive a fifth of global growth in the coming decade, we believe it offers a compelling opportunity in a world starved of growth,” it said.

The report could not have come at a better time. Not only were there fears that the US would succumb to a recession this year, it was still unclear when China would ditch its draconian zero-Covid policy that contributed to a dramatic deterioration in investor sentiment towards Asia’s biggest economy.

Advertisement
Fast forward a year and concerns about the engines of global growth have intensified. Although the US has proved more resilient than anticipated, the price of this – sticky inflation that is forcing the Federal Reserve to keep interest rates higher for longer – increases the risk that a long-feared recession will finally materialise.
Yet, it is the prospects for China that have darkened significantly. A much weaker-than-expected rebound from three years of self-imposed isolation, exacerbated by a severe policy-induced downturn in the property market, has caused sentiment to hit rock bottom. This has fanned fears – which are misplaced yet potent – that Asia’s largest economy is entering a protracted slump, akin to the one suffered by Japan in the 1990s.
Advertisement

China’s woes have helped shape the bullish narrative around India. While the CSI 300 index of Shanghai- and Shenzhen-listed stocks is 38 per cent down from its February 2021 peak, the Nifty 50 index (one of India’s two main equity indices) hit a fresh all-time high in September, having soared 140 per cent since April 2020.

Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x