'Fed taper to lead to lack of short term growth, fall in rupee'

The survey further said that growth in eurozone and emerging markets are threatened by quantitative easing.

PTI| Updated: Jan 22, 2014, 21:03 PM IST

Davos: One in three Indian businesses believe a trimmed US economic stimulus will lead to lack of short-term economic growth and a significant majority are of the opinion that the rupee will depreciate after the Federal Reserve tapers its monthly bond purchases, a survey says.

According to a global poll conducted by FTI Consulting, that covered 1,000 businesses, quantitative easing (QE) would have far fetching effects on the Indian economy that includes decline in economic growth and fall in the Indian currency.

"One in 3 Indian businesses surveyed believe tapering QE will lead to a lack of short term economic growth," the report said, adding that 58 per cent of Indian businesses think that the rupee would decrease in value when QE is tapered.

Only 25 percent of the survey respondents believe that the rupee would increase after QE tapering.

Talking about the impact of calibrated tapering of bond purchases by the US Federal Reserve, Finance Minister P Chidambaram today said: "We have done a lot of preparatory work. There will be some consequences on emerging economies but I think we are better prepared now to face the taper".

The Federal Reserve has announced trimming of its USD 85 billion monthly stimulus from this month.

The survey further said that growth in eurozone and emerging markets are threatened by quantitative easing.

Spain tops the list of countries predicted to suffer most from the effects of tapering, followed by Brazil, Indonesia, Poland, Turkey, South Africa.

On the other hand, the markets that are likely to be positively impacted include, United States, Germany, China, Japan and the United Kingdom, the report said.

"The risk associated with emerging markets remains high, but the way in which QE tapering is applied can play a role in either enabling growth or throwing currencies and economies into turmoil," it said.

Over 40 percent of respondents believe corporate bonds, equities and government bonds would become less attractive.

One in five global business decision makers surveyed said they are less likely to invest in countries such as Indonesia, Poland and Turkey when QE is tapered, the report added.

"The global economy is more interlinked now than ever before so a lack of synchronisation across the central banks deploying QE could have drastic destabilising effects," FTI Consulting Chairman of Europe, Middle East and Africa Mark Malloch-Brown said.

A majority of respondents (68 percent in total and 80 percent in emerging markets) cited inflation as the dominant concern in their respective domestic economy during the next five years.

The other most commonly anticipated threats to business in the coming year cited in the survey include escalating labour costs, rising supply chain/raw materials prices and the cost of finance.