See downside risk for global economy in next few mths: HSBC

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Chief economist for ASEAN and India, Leif Eskesen from HSBC sees more downside risk for the global economy in the next few months. In an interview to CNBC-TV18, Eskesen said, "The S&P downgrade is not the alone cause for the downside risk. We have also seen global economic data weakening over the past few months."

He also feels that India will be less impacted and dependant on exports. "Though India is not immune, it is more domestically oriented economy. We won't have to see direct impact on India through the trade and finance channel, but would have an impact through the confidence channel because it impacts sentiment domestically," he explained.

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Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: What would be the impact on India from the sluggish global growth for next six-nine months?

A: We see more downside risk to the global economic outlook over the next few months. The S&P downgrade is not the alone cause for the downside risk. We have seen global economic data weakening over the past few months.

Things have been worsened by the ongoing debt side and Europe, political bickering in the United States and run up to the increase in debt ceiling. The S&P downgrade adds to the economic uncertainties that could see consumer and business sentiments easing further going ahead. This could have an impact on the global demand, which would also spill over to emerging markets.

Though India is not immune, it is more domestically oriented economy. We won't have to see direct impact on India through the trade and finance channel. We would have an impact through the confidence channel because it impacts sentiment domestically.

As a first response, we would see much lesser impact, but it is worth keeping an eye out for and there could be downside risk to growth in India as a consequence of that.

Q: On the core concern of a double dip recession, what is the likelihood to your mind right now?

A: It is hard to put a percentage on that, but the downside risk to growth globally has increased over the last couple of months. It is certainly a possibility. It is not a part of our base line scenario, but it is certainly a risk scenario that has high probability attached to it. In the base line scenario, we do not expect that to take place.

Q: Would you cut India's GDP growth forecast significantly?

A: At this stage, we are not in a process of downgrading our growth forecast. We still have 7.6% growth for this fiscal year, which is already below potential growth and consensus. In a sense, it is a quite conservative estimate of growth.

We would have to see how this global slowdown transpires over the next couple of months and gets in more data points on the table before we can say that there is reason to downgrade growth in India.

Q: What about your expectations from Reserve Bank of India? Do you expect to cut down the number of rate hikes?

A: In our base line scenario - where we do not expect a double dip globally - we expect them to continue tightening over the course of this fiscal year and take rates to at least 8.25 for the repo rate.

However, as these events unfold over the next couple of months, it has had an impact on global economic sentiments and uncertainties about the global economic outlook. It could clearly have an impact on the pace of tightening. There could be a pause in the next monetary policy meeting, if this sentiment continues to sour over the next couple of months.

We wouldn't have to see a more significant global economic slowdown over the next few months than currently anticipated for this stance to change and RBI to continue easing monetary policy. It could certainly warrant a pause coming up in the next meeting depending on how things unfold over the next couple of months.