[T.S.R:16043] Citibank: 8% GDP Growth Unsustainable For India, Unmanageable Current A/C Deficit, Untamed Inflation

Citigroup Global Economics The risks to global economic activity are mainly on the downside (slower growth, deflation):  Reasons: Cyclical and long-term consequences of financial crisis in US and Europe (Reinhart & Rogoff and Reinhart & Reinhart).  Household, banking sector & government deleveraging in US & Europe (with some exceptions). US and Japan likely to be forced by markets into fiscal tightening within two years. Deep restructuring needed in US: from consumption & residential construction-driven economy with excessive credit growth & subsidisation of non-traded sectors to net exports & fixed investment in tradables-driven low credit growth economy.  Deep restructuring needed in China: from investment and net exports driven demand to consumption-led domestic demand. Unresolved sovereign debt and banking sector solvency issues in EA. Overheating in Emerging Economies Partly result of excessive domestic stimuli  (monetary, credit & fiscal) Partly result of near zlb interest rates in AEs and  continued credit expansion in AEs 'Wall of  Money' moving from AEs to shallow, underdeveloped  domestic currency markets of EMs. Leaning against market-warranted currency  appreciation & incomplete sterilisation of reserve  inflows means externally-sourced credit growth reinforces domestic credit expansion. Overheating Emerging Economies: China:  Unsustainable growth (9.5%*), question marks over inflation data (3%*)  Quarterly flip-flops of credit & regulatory policy  Reluctance to use interest rates and exchange rate  Continued misallocation of capital India  Unsustainable growth at 8.4%*  6% repo rate but inflation still 8.8%*  Unsustainable fiscal position  Asset market overheating (stock market & real estate)  Growing current account deficit.  Brazil  Unsustainable growth at 7.6%*; inflation 4.9%*  Excessively expansionary quasi-fiscal policy. Turkey  Unsustainable growth: 7.6%*  Rising inflation: 8.5%*  Growing current account deficit: 5.3% of GDP*  Monetary and fiscal policy behind the curve Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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