Green shoots will turn brown when summer ends

Though some traders and marketmen have begun saying that the world economy is rehabilitating,the head of Morgan Stanley Asia vehemently differs in his opinion. People are being creative in saying that the worst is over, is what Stephen S Roach says. Talking to the media in Mumbai on Wednesday,company chairman Roach said,The rate of economic contraction has come down in the global economy. However,the data points are not positive8230; they are just less negative in the US and Europe.

Asked whether India and China could pull the world out of this recession,he said,Export-led countries are incapable of leading the world out of recession. I don8217;t think the global recovery will be led by Asia as it is too dependent on exports. The share of exports in Asias GDP was 36 per cent in 1998 which went up to 47 per cent in 2007. However,he said,infrastructure spending within the country will increase demand. Roach projected India to grow at 5.5 to 6 per cent over the next three years.

Talking about the rally in equities and the commodity market,Roach said that the present rally was not backed by fundamentals. Green shoots will turn brown by the end of this summer and markets will correct sooner than later, he said. However,he hoped that the new government would take more initiatives to increase public sector spending.

The financial services major said that capital flows to the country would almost double from an estimated 17.3 billion in 2008-09. We expect improvement in capital flows to 33.9 billion in FY10 and 41.3 billion in FY 11, Morgan Stanley economist Chetan Ahya said in a report. The improved sentiment for the country8217;s macro outlook,driven by a strong political mandate and economic reform expectations,should help India increase its overall share in capital flows allocated to emerging markets,the report added.

The Morgan Staney report said both FDI and foreign institutional investment are likely to increase in the current fiscal.