India’s positive growth forecast could be good news for Australia’s iron ore exporters, says UBS.
According to UBS, the Indian economy is expected to grow at 8.5 per cent next year, making the nation the fastest growing economy globally.
“Any kind of growth rate like [8.5 per cent] should be positive for exporters of steel and coal,” said UBS Wealth Management head of investment strategy David Sokulsky.
However, “how positive and how beneficial it is, we are yet to see that”.
Mr Sokulsky said the extent to which Australia’s iron ore industry will benefit hinges on how much India sources domestically versus how much it sources externally.
He pointed out that it is too soon to tell whether India’s growth will translate into a greater demand for Australian iron ore.
If demand for Australian iron ore increases, “that would be great for us, great for the economy,” he said.
There are a number of factors underpinning India’s economic performance.
Mr Sokulsky notes the election of Prime Minister Narendra Modi in 2014 as a turning point.
“There are a number of structural changes coming into place,” he adds.
The implementation of a GST which results in the spending of raised capital, and providing every Indian citizen with a bank account, will continue to be drivers of growth.
“Some of those things are very important in terms of the growth of the country,” Mr Sokulsky said.
There has also been a pick-up in industrial production.
Inflation has reduced from roughly 7.5 per cent, Mr Sokulsky said.
“Cutting interest rates … then allows more economic growth, more credit creation and borrowing,” he explained.
Moreover, there is increased positivity due to Modi “pushing the economy forward”.
“There are number things that are going on, on the ground, which are important,” Mr Sokulsky concluded.
UBS is set to increase its Indian asset allocation in the near future, he added.