Demonetization in India Barely Dents GDP Growth, while Imports Surge in Germany

Experts thought the demonetization shock that hit India in the third quarter of 2016 would certainly put a big dent in the nation’s GDP growth, but the nation has emerged largely unscathed.

Real GDP growth in the fourth quarter of 2016 dropped to 7% from 7.4% in the prior quarter, with the data suggesting demand in the economy was broad-based, according to the latest export risk outlook from credit insurer Euler Hermes. Even more surprising was the fact that private consumption in India, apparently so dependent on cash transactions that had been disrupted, accelerated to 10.1%, year-over-year, from the prior quarter’s reading. Euler Hermes analysts explained that a favorable base-rate effect due to downward revisions of prior quarters, an inability of official statistics to properly capture the negative growth effects in the informal sector and accounting effects resulting from more companies who operate in the informal sector moving to declare their revenues have contributed to the upside changes.

“Looking ahead, recent high frequency indicators (PMIs, exports) point to an upturn of activity in early 2017,” analysts said.

In Germany, GDP growth improved by 0.4% in the fourth quarter of 2016, compared to 0.1% growth in the prior quarter, mostly as a result of domestic demand in government spending and fixed investment, the credit insurer said. Research and development spending was also up, as were exports, which rose 1.8%. Imports, meanwhile, surged to 3.1%. “Euler Hermes expects domestic demand to continue to drive growth in 2017, with slightly moderating consumption but strengthening equipment investment,” analysts said. “External trade should further pick up, in line with stronger global trade activity.”

– Nicholas Stern, senior editor

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