India to grow at 5.7% next yr; crude fall a plus: JP Morgan

With Brent crude falling to five year lows below USD 65/100, James Glassman, senior economist at JPMorgan thinks it is a big positive for most developing economies (DEs), including India.

In an interview to CNBC-TV18 he spoke about the pros and cons of the decline in crude prices on global economies.According to him, it would benefit all oil importing nations and would boost their growth. For India per se, he pegs growth at around 5.7 percent for the next year.He is also not overly worried about slowdown in growth for China and says it should not be interpreted as a negative story.

Below is the transcript of James Glassman's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: What have you made of the Organisation of the Petroleum Exporting Countries (OPEC) numbers? Is the global sell off that we saw in equity market linked to the fact that the world is getting used to a lower pace of global growth in early 2015?A: I do not think that is going to happen because this decline in oil prices is very disruptive for oil producers and oil producing countries but this is a huge spurt to growth particularly in the developing economies countries that rely on outside sources for revenues. So for economies what we are watching is a very positive development for growth. I think it’s very premature to be thinking that the global economy is going to be struggling. What we are seeing here, this year has been a bit disappointing but we are going to see much better performance next year and the transfer of massive amount of resources from oil producing countries to oil consuming and then of course India - for example the amount of oil that you need from outside sources is worth about the annual bill about 2 percent of your economy. So this is a very big relief for the economy as a whole not for the oil industry but for the economy as a whole.You get days like today - these moments are probably more about positions, disruptions and negative impact on the oil sectors but for the broader economy the picture is looking much better than it might have looked not long ago.Latha: When OPEC cuts the oil demand from 29.4 in 2014 to 28.9 million barrels per day in 2015. They are actually referring to their oil demand, which could be substituted by shale. They are not referring to lower contracting demand?A: Exactly. That’s the problem, there has been lot of supply coming from Iraq, Libya, from the US shale development, and so Saudi Arabia is saying there is more oil available in the world now, is that meaning less demand for Middle East oil? It is negative for the Middle East but as you notice from the OPEC meeting; they chose not to cut production in response to this, they are accepting lower prices. My guess is in the longer-term we will probably see oil demand come back and it will probably help to absorb some of the sector supply but for now it is providing a fair amount of relief and support particularly for the developing economies. Sonia: There are two issues here – one, of course the fall in crude prices which is beneficial for markets like India but the other is there is a genuine growth scare that we are seeing in some Asian economies like China, Japan etc. How worried would you be about that and what kind of a snowball effect would that have on markets like India?A: I think Japan story has been a disappointment but Japan has put in place a setup that is quite favourable for next year, for example because of the policy initiatives they have been pursuing in the last year - their currency has declined 30-40 percent and for Japan that is a very big help. It’s looking backwards. Japan has been little bit disappointing, their growth has been stalled but going forward they are going to get quite a bit of help from the lower currency. However, China story is confusing to all of us because as China continues to develop, China’s natural growth rate will be slowing down. I would expect they will be aiming for about 7 percent growth next year – that doesn’t mean that China is running its trouble; it just means that they are moving up the ladder of economic development. I do not know that China’s slowdown -- it may be slowing than others but I do not think that this is a negative story. I think this is a story about progress towards development.Latha: Your forecast for the various asset classes particularly equity markets in early 2015, would you still be strong equities or bullish equities? Which markets?A: What we discover is that the oil phenomenon is generating new energy in the developing universe. I am not an equity analyst but I would think that anything that generates more growth is very positive. When I look at our growth forecast, we are expecting next year to be a better year for Asia, 4.5 percent growth for Asia, India would be much better and also US, however Europe could be marginally better. Europe has got bigger challenges than most but they are setting in motion, policies that are much like Japan are going to give us a weaker currency and then help the export industries in Europe. Latha: In general do you think commodities are going to find 2015 a bearish year?A: It’s a very bearish year or this year already. Things move quickly. I would be surprised if it was more bearish than this year. Maybe we will see some of these commodities settle down now, maybe they will overshoot but this is a very big swing we have seen in the commodity market this year. So I would expect that we will start to see some stability particularly the global economy continues to move forward and we start to see some faster growth in the US, the Asian region as well. So that alone might help to stabilise commodity prices where they are but they have had a fairly big correction this year in response to all this supply that’s been coming out.Sonia: Do you have any estimates on what the growth for India might look like in your mind and also how much of a positive impact would we have on the fiscal deficit because of the fall in crude?A: The fall in crude is quite significant for India. In my mind the relief coming for India was about 2 percent of their economy. My colleagues are forecasting growth by about 5.7 percent for India next year, little slower than the Q4 that we are in. They were expecting fairly significant pick up in growth going into next year and there is a lot of optimism about India longer term.