G3 economies may move into recession: Bill Belchere

Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS Way too late to be getting out of stocks: SCB Nifty has support at 3959/3924: India Capital Markets Asian markets concerned about global economy: Subodh Kumar US Crisis – Lessons for Indian Investors For Asian mkts focus should be on headwinds: Julius Baer ALSO READ See what other FIIs are saying about the markets See what other experts are saying about markets See what Udayan Mukherjee is saying about the markets Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

US markets saw biggest single day fall as House of Representatives rejected USD 700 billion package. The bailout package was rejected by a vote of 228 against it to 205 for it. Democrats voted 140 to 95 in favour of the legislation and just 65 Republicans backed the bill and 133 opposed it. Senate may reconsider financial package as early as October 2, following rejection. Dow Jones ended down 778 points at 10,365.5, Nasdaq was down 200 points at 1983.7 and the CBOE Volatility Index was up 35% at 46.72, highest level since 2002.

 

Bill Belchere, Asian Economist said that there are risks to global markets that continue to exist."We are looking for a fairly sharp slowdown in the near-term in growth and for Asia the critical valuables is the export sector, which looks like it will slowdown fairly aggressively here."  He believes that the G3 (Colombia, Mexico and Venezuela) economies including Japan are going to move into recession.

 

On Indian economy Belchere said," We are expecting the Indian economy to slowdown over the next year or in a quarter year or year and a half to about 7.5% this fiscal year and 7.3% next fiscal year."

  

Here is a verbatim transcript of the exclusive interview with Bill Belchere on CNBC-TV18. Also watch the accompanying video.

 

Q: Would you say that the markets are holding up today primarily because of the ban on short selling and an unspoken hope. Do you think there is more bloodshed waiting to happen?

 

A: I do think that the markets have bounced back a bit and that's very helpful. Until the US gets a package through Congress and it looks like a reasonable package that will reduce a systemic risk; there are risks to global markets that continue. Once we get a package then we have to focus on how bad the global economy is damaged. We are looking for a fairly sharp slowdown in the near-term in growth and for Asia the critical valuables is the export sector, which looks like it will slowdown fairly aggressively here.      

 

Q: I was reading a report on Wall Street Journal that the US may get a better package than what's been rejected as early as this week. Do you think there exists a possibility of such a package coming through?

 

A: I certainly think so. The fall in the stock market last night raise the probability that goes through this week. We think no later than Friday, you will see something from the US Congress that addresses the problems in the US banking system.  

 

Q: What kind of an impact do you see in the various economies? Are you expecting a fairly prolonged recession in US and the UK and what would be your assessment of the impact on various Asian economies?

 

A: I think the G3 (Colombia, Mexico and Venezuela) economies including Japan are going to move into recession. It's certainly going to be, I would think equal to the technology crack in 2000-2001 and the way the transitions back into Asia should drop in export growth. That's going to push down Asian exports and Asian exporters generally drive the liquidity cycle in the Asian equity cycle.        

 

Q: Within the Asian economies how are you expecting the Chinese and more importantly the Indian economy to perform? Do you have any growth targets?

A: We are expecting the Indian economy to slowdown over the next year or in a quarter year or year and a half to about 7.5% this fiscal year and 7.3% next fiscal year. Not terrible but not 8-9% that we got used to for a few years there. In the case of China too, we are looking for the economy to slowdown for the next couple of quarters but China has the most policy flexibility in Asia and with it we expect growth to rebound later in 2009.

Q: Would you say the back of inflation has been definitely broken globally? How do you look at the inflation and interest rate trajectory in India?

A: The inflation trajectory or the inflation problem back has broken. This real thing now is addressing the growth slowdown particularly in the US. In India, the inflation cycle is headed down and that ought to relieve pressure on monetary policy and allow policy flexibility to be regained as we move into the first part of 2009.