Labourers work at the construction site of a residential complex in Noida on the outskirts of New Delhi, India, August 20, 2015.ADNAN ABIDI/Reuters
As China sputters, Brazil remains stuck in reverse gear and Russia drives right off the road, India has emerged as a rare beacon of growth and stability among major emerging economies.
The Indian economy expanded 7 per cent year-over-year in the second quarter, down from 7.5 per cent the previous quarter. That was below the consensus forecast. But it was a lights-out performance compared with fast-fading former BRIC star Brazil, whose GDP shrunk by 2.6 per cent from a year earlier.
The slump-ridden Russian economy plunged 4.6 per cent in the quarter from a year ago and 2.2 per cent from the first quarter, its biggest decline since the Great Recession of 2009.
China also reported quarterly growth of 7 per cent from a year earlier, matching its first-quarter advance and conveniently in line with Beijing's projection for the year.
It's results like this that make skeptical observers wonder if the data have been subjected to some serious tui na massage therapy. This feeling is reinforced by other information showing holes in the growth picture that will be tough for officials to paper over.
Two closely watched surveys of China's manufacturing activity show a noticeable decline in August. The official purchasing managers' index (PMI) slipped below 50 for the first time in six months, signalling a slowdown among big producers. And Markit's Caixin China general manufacturing PMI, which tracks more than 420 companies of various sizes, showed the steepest drop since March, 2009, in response to weaker demand. Survey participants continued to shed jobs in August, marking the 22nd consecutive month of shrinking work forces across a wide swath of the industrial sector.
Indian manufacturers face headaches, too. Profitability is low, capital investment has been falling, hiring is down and promised structural reforms have yet to materialize. Weaker global demand hits the country's exporters hard, because they tend to be less competitive than many of their counterparts.
The steady expansion of the Indian economy in the teeth of these problems is a testament to the value of India's burgeoning service sector and its growing domestic consumer market. China is eagerly pursuing a similar game plan in an effort to reduce its heavy reliance on manufacturing investment and exports into a hotly competitive global marketplace. But the transition has been a rocky one. And few other emerging countries seem to be doing any better.
Amid weakening commodity prices, most emerging market currencies have plummeted against the U.S. dollar. Beijing's decision last month to devalue the yuan has worsened their plight, raising the spectre of tit-for-tat currency wars. Indonesia and Malaysia have watched their currencies plumb depths not seen since the disastrous Asian financial crisis of 1997-98, driving up import costs and driving down growth.
But thanks to India's relatively lower exposure to global headwinds, the rupee has been somewhat insulated, sliding only about 4 per cent against the greenback since May.
Services account for just above half the total value added in India's economy and two-thirds of its growth in the second quarter. The sector has been "punching above its fighting weight," Wells Fargo Securities global economist Jay Bryson said in a note. "The relative orientation of the Indian economy toward services has generally served it well in the current environment of financial and economic volatility around the world."
Indian Finance Minister Arun Jaitley went a bit too far when he recently declared that the global market upheaval was no cause of concern for India. And his confident assertion that his country is poised to become an engine of global growth is not supported by the facts on the ground.
But Mr. Jaitley is right to emphasize that this is the time for India to seize the opportunity to speed up the structural reforms needed to ensure the economy reaps maximum benefits from the global turmoil. A crisis such as this one would be a terrible thing to waste, especially if it means poking the arch-rival Chinese dragon in the nose.