Some recovery in the US economy is truly in the air.

Japan – the world’s third largest economy – has also technically come out of recession going by the December quarter GDP data.

China’s February exports soared past forecasts, suggesting that global demand is on the recovery mode.

All these bode well for an Indian economy that is languishing at decadal-low growth of about five per cent.

So what are the key factors that may have led to a conclusion that the US economy may possibly have turned the corner?

Improved job market and rising wages are shoring up sentiments in the US. Unemployment has declined from 10 per cent in October 2009 to 7.7 per cent (in February), a four-year low.

There is a show of confidence among employers in the face of federal budget cuts and tax increases.

Dow touches peak

The Dow Jones Industrial Average reached record closing highs last week. The stock market has nearly doubled since 2009 and also surpassing the record high set in October 2007. And the housing market has also been rising.

Investors are clearly encouraged by the latest weekly jobless claims data. Analysts had expected this to rise, but the actuals fell. Private payrolls grew by 2,46,000 in February, the most since November. This brings the average gain over the past six months to over 2,00,000.

This has raised hopes that the job market has the staying power needed to tackle the coming government spending cuts – popularly known as sequestration – of $85 billion this year.

It is estimated that the automatic reductions could subtract 0.6 percentage point from US gross domestic product, costing the economy 7,50,000 jobs.

The sequestration, at least so far, has had no discernible impact on confidence, say US economy watchers.

There is even some talk of Americans having lost their fears and foreboding that had made the financial crisis of 2008 so enduring in its impact.

Indian scene

Stock markets back home are supported by these positive global cues from the US, Japan and China.

All eyes are now on the inflation and IIP data (for January) expected during this week. IIP data are expected on March 12 and inflation data on March 14. Indications are that the Indian markets have already factored in a weak IIP print in January despite some positive noises from the recent core data.

The eight core sector industries grew by 3.9 per cent in January this year, up from 2.2 per cent in the same month last year. The eight industries account for nearly 38 per cent of the overall IIP.

Rate cut hopes

There is also hope of a policy rate cut (at least 25 basis points) by the RBI in its monetary policy on March 19.

The market sentiment improved significantly after the Finance Minister said that the Government will soon announce more measures to boost economic growth. The new measures will include sops for exporters.

The Finance Minister also indicated that the fiscal deficit could turn out to be lower than the projected level of 5.2 per cent of GDP.

But Euro Zone’s continued economic woes are still a cause of concern for many in India.

Srivats.kr@thehindu.co.in

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