Impact of US Subprime Crisis On India And China

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Abstract:


Abstract:

The impact of US subprime crisis on India and China will not be felt to a very large extent. Economists say that there are enough reasons to think likewise. The write up below gives reasons as to why the impact will not be felt to a large extent.

The Impact of US subprime crisis on India and China may not be very large according to economists. It is being anticipated that the developing countries might be spared for a year or two and neither of the countries would be affected either by economic recession in the USA or the prevailing US subprime crisis. This notion was put forward by the leading economist of the World Bank.

Further, it is being fathomed that even if there is an impact of US subprime crisis on India and China, it will not be taking place earlier than two years. However, it will be wrongly said if the developing nations like India and China would be entirely untouched by the ripple effect. The prevailing economic condition in these countries are so strong that it may not feel the upheaval as it would have felt had the economy of these countries been sluggish.

Probable effects on financial markets of India and China:

One possible impact of US subprime crisis on global markets would be certain unforseen losses pertaining to securities. If such a situation arises, it would further make credit conditions stringent. Consequently, loss incurred on securities would increase. As a cumulative effect, the financial markets would spiral downward causing the monetary policies to become more loose.

With regard to equity markets, it is being anticipated that equity markets may go down and the cost of capital(effective) may rise by 200 basis points as compared to the baseline. As a result of the credit constraints, business investment in the United States of America would drop, unemployment would rise and there would be a prolonged phase of depression in the consumer prices.

The need of the hour is to have a more open economy or be open to trade, attract investments, which would re kindle innovative concepts and enhance foreign direct investment. The growth has to be such that it is sustainable, only then will the impact of US subprime crisis on India and China be negligible.

 

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