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Singapore. A lower than expected growth forecast for India, coupled with a slowing Chinese economy, has increased the likelihood of a tepid first half of the year for Singapore and other Asian countries.

This week, India tweaked its estimate for economic growth this year to 6.9 percent, the lowest in three years. The International Monetary Fund has also cut its forecast for growth in China from 9 to 8.25 percent this year.

“China and India are the two giants in Asia, so when they trim their GDP (gross domestic product) outlook, it is expected that there will be slower growth all across Asia in the first half,” said United Overseas Bank (UOB) economist Suan Teck Kin.

However, other analysts say the effect is likely to be temporary as the global economy continues to shift towards Asia.

Said Nagesh Kumar, chief economist with the United Nations Economic and Social Commission for Asia and the Pacific: “There will be impact but I don’t expect it to be of severe magnitude.”

He added: “India’s trade with Asean will continue to grow. The rebalancing of Asia towards Asia is a fact of life.”

During the 2008 global financial crisis, China and India powered on, helping save South-east Asia from a deep recession.

But now, China’s exports to crisis-hit Western economies are declining even as its manufacturing costs continue to rise. What is more, rising inflation at home is limiting Beijing’s flexibility in loosening monetary policy to boost growth.

Yesterday, China announced a higher than expected inflation rate of 4.5 per cent, reinforcing worries that it is unlikely to pump more money into the system in order to avoid a hard economic landing. The government could come up with more measures to stimulate domestic consumption or support certain parts of the property sector such as social housing, but the effectiveness of such measures to boost immediate growth is unclear.

Concerns about China’s economy intensified, with industrial output growth projected to slow to 11 per cent this year from 13.9 per cent last year.

Analysts contacted expect a recovery in the second half, however. A bright spot is that domestic demand in both countries is likely to keep trade brisk.

“Trade and investment ties with Asean countries will still continue to grow this year because as China restructures its economy and boosts domestic consumption, it will need more resources and goods from abroad,” said Renmin University finance professor Zhao Xijun.

For Singapore, the slowdown in China is expected to have more of an impact than that of India.

“Price pressures in China are still high and (in Singapore), we are facing a similar impact in terms of higher inflation,” said UOB’s Suan.

“Singapore may take China’s CPI (consumer price index) figures as a signal that we could face higher price levels as well, and this may affect the Monetary Authority of Singapore’s policy loosening.”

Over in India, Finance Minister Pranab Mukerjee called the 6.9 per cent growth estimate by the Central Statistical Organisation “disappointing,” but said he was hopeful of a recovery in the second half of the year.

The Indian slowdown is expected to hit all sectors. Agriculture is now expected to grow just 2.5 per cent, compared with 7 per cent the previous year, while manufacturing should grow 3.9 per cent, down from 7.6 per cent.

India’s growth has been reined in partly because the Reserve Bank of India, its central bank, hiked interest rates 13 times in the last 18 months to fight inflation.

The country also continues to be paralysed by a series of corruption scandals that have held up policy decisions in key sectors, such as whether to allow foreign supermarkets to enter India.

Arun Maira, a member of India’s Planning Commission, acknowledged that the country’s slower growth was partly self-inflicted and due to “internal factors.”

“Once we get those sorted out, then our growth will pick up,” Maira said.

Acutely aware of the dangers of slowing growth in a country where millions live under the poverty line and are unable to eat three meals a day, India has in the past month tried to shake off its policy sclerosis.

The government has revived a proposal to let foreign airlines buy big stakes in Indian airlines, allowed foreign individuals to invest directly in the Indian stock market, and allowed foreign brands like Ikea and Gap to open shops in India.

In the longer term, analysts say, the world’s economic centre will continue to shift towards Asia, as the European and US economies struggle.

“India and China are going to be growing faster than much of rest of the world. What does remain true is that the shift towards Asia emerging as a large centre is going to remain,” said Maira.

Reprinted courtesy of Straits Times Indonesia. To subscribe to Straits Times Indonesia and/or the Jakarta Globe call 021 2553 5055.