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Updated Monday, July 27, 2009 10:34 am TWN, By Jeremy Tordjman, AFP

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China, India can help, not save world economy

PARIS -- Fast growing China and India may be important players but the emerging economic giants alone do not have the clout to drag the global economy out of its worst slump since the 1930s, analysts say.

China, ranked the world's third largest economy after the United States and Japan, grew 7.9 percent in the second quarter this year while India expanded 5.8 percent in the three months to March.

Such rates are relatively modest by their standards but stand out sharply as the United States, Japan and Europe are all mired in deep recession as their economies struggle through the fallout from the global financial crisis.

Chinese and Indian demand has largely kept raw material prices afloat this year — a key plus for exporting countries such as Australia and Brazil — while also offering hope against the prevailing gloom.

The two countries “send out a positive message at a time when the trend is dark and this can help reassure the markets,” said Michel Fouquin, international affairs analyst in Paris.

But beyond this psychological comfort, China and India have only a marginal impact on the wider global economy because they are exporters with limited domestic demand — ultimately, they are relying on the developed world to recover first before they too can move ahead once more.

“There is no way that the world economy can get back on its feet again just through (the efforts of) the emerging giants,” said Eric Chaney, chief economist with Axa.

China and India may drive demand for raw materials and the other inputs they use in their own exports from Brazil, Australia and the smaller Asian countries but that is not enough for recovery in the developed world.

“I'm much less convinced that either China or India can (provide) a significant boost to other economies,” said Eswar Prasad of Cornell University.

“India and China can provide an indirect boost ... by maintaining domestic demand and providing a sense of confidence to the world economy that the recovery is in progress ... but their contribution to the world economy is going to remain modest,” Prasad said.

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