After several years of rapid growth, 2009, will prove a testing year for India.

Inflation Inflation continues to pose a threat.  Inflation peaked at 12% in early August ’08. Inflation, is being caused by rapid growth (demand pull factors) but, also the cost push inflation factors (rising oil prices). Hopefully, the fall in oil prices and higher interest rates will reduce inflation without causing too much of a slowdown.

Economic Growth. After reaching growth of 9.8% in 2007/08, growth is expected to slow down to 7%. This might not be a bad thing as it will avoid inflationary pressures building further. However, some worry the global credit crunch could reduce growth much more.

Global Recession and Indian Economy. It appears that Europe,  Japan and the US are entering into recession. Falling house prices, crisis in the financial system, and lower confidence could lead to a sharp downturn, with the worst still to come.

Many argue, that India’s growth is not so dependent on growth in the West. However, the Indian stockmarkets have been hit by the global crisis. India’s growing service sector and manufacturing sector would be adversely impacted by a global downturn. However, I still feel that India’s economic success is not dependent on growth in the West, and at worst India’s growth rate will be less than hoped for.

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Readers Question: could you please help me. should i take business or ecomomics at A level? i have got an A in business at gcse but im not sure which one to take.

I often get asked, which is the better subject – Economics or Business Studies.

I have taught a little business studies (though never studied it), but my main preference is for Economics.

Many have a feeling that Economics is more of an ‘academic subject’ and therefore more valued by Universities. It is one of those things that have slipped into popular belief, and it is hard to evaluate whether Universities really do value Economics more than Buiness Studies. My feeling is that, if they do prefer Economics it will be marginal at best.

There is some overlap between Economics and Business Studies. – some macroeconomics (called external influences in business) and concepts like economies of scale. But, generally they are stand alone subjects. Business studies examines management techniques and accounting practises such as profit and loss / cash flow e.t.c.

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Readers Question. Could you give any more information on how you think consumer buying habits will be affected by the credit crunch moving into 2009. Obviously people are spending less nowadays and tightening their purse strings. Will this continue into 2009? Will we see the birth of a new type of savvy consumer who knows what supermarket to go to at any given time to get the best deals, who used to shop at Waitrose and is by 2009 a fully fledged Aldi advocate? Will people still be staying in instead of going out or will we rise out of this bump and return to life just as it was before the doom and gloom headlines hit the media?

Consumer spending will continue to be squeezed in 2009. Various factors are causing consumer spending to fall at the moment.

Falling House prices. Houses are the biggest form of wealth in the UK. As house prices fall, consumers lose confidence and can no longer remortgage to gain equity withdrawal. With mortgage lending continuing to be tight house prices are likely to fall further in 2009. Therefore, this will be a big drag on consumer spending.

Cost Push Inflation. Inflation is forecast to peak at around 5% before starting to fall next year. Despite the increase in costs, wage inflation has remained low. This means,

• living standards have been squeezed reducing consumer spending
• It will help reduce inflation next year.

Rising Unemployment.

The slowdown in the economy and rising unemployment will be a big factor in reducing consumer spending. Some predict unemployment will reach 2 million by Christmas time. Even the fear of unemployment may be sufficient to reduce spending.

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