Euro economy to barely grow in 2009

The European Commission said the region's economy probably entered a recession this year and will stagnate in 2009.Economic growth in the euro area will slump to 0.1 percent next year, the worst performance since 1993, It also estimated that gross domestic product will shrink for three consecutive quarters this year and cut its forecast for full-year 2008 growth to 1.2 percent from 1.3 percent previously. Manufacturing contracted at a record pace in October and faster than initially estimated.

In addition to flooding markets with cash, central banks across the world have also begun slashing interest rates to limit the economic impact of the financial crisis. The European Central Bank is set to cut its benchmark rate this week for the second time in less than a month after the U.S. Federal Reserve lowered its rate to match the lowest level in a half-century. Policy makers in Japan, India and Norway have also cut borrowing costs.

The Irish, Spanish and U.K. economies will all contract next year, while Germany, Europe's largest economy, France and Italy will stagnate. For 2010, the EU sees the overall euro-area economy expanding by 0.9 percent.

Tough time awaits for Indian INC - debt burden

Indian companies have to redeem around $44.57 billion of overseas debt between now and December 2009 in an economic environment where money has become scarce and costly. This debt funded for their domestic expansion and overseas acquisitions.


This is a pretty big issue, as the cost of borrowing could remain high for some time to come.To be sure, some of the companies, such as Hindustan Zinc, say they have repaid their loans ahead of schedule.Most companies, however, usually pay their debts only when they are due or, if the foreign currency is appreciating, replace foreign debt with local borrowings. This means Indian firms will find it difficult to roll over their old debt and raise new debt. This will affect their expansion plans as bankers do not expect the scenario to change anytime soon. Apart from the cost of borrowings, Indian firms also need to take forward cover for their overseas loans to hedge the currency fluctuation risk when they pay back their loans by buying dollars from the market. The local currency has lost at least 20% against the greenback this year.


When the Libor rose sharply—reflecting the rise in credit risk in London—the rates at which the Indian firms had borrowed went up. Beyond the rise in debt servicing, Indian firms and banks also saw the cost of rolling over their maturity debt rise sharply as the money market in London dried up. As the costs of rolling over debt rose sharply, Indian firms borrowing in London found themselves structurally short of dollars. They responded by borrowing in the Indian short-term money market, converting the funds into dollars, using the proceeds to meet external debt obligations.

Indian Pharma - Clouds on ...

Indian Pharmaceutical industry has been one of the high performing sectors of the Indian economy for the last some years mainly on account of its export oriented growth. Top companies like Ranbaxy, Dr. Reddy's, Cipla, Lupin, Sun Pharma, etc. have been exporting more than 50 per cent of their production to the developed countries for years with attractive margins despite competition from other generic players. Several medium and small scale pharma companies had also jumped to the export bandwagon later. A study of 75 listed Indian pharmaceutical companies during 2006-07 reported a 44.5 per cent growth in net profits and a 23.5 per cent growth in sales during 2006-07. Such excellent performance was possible for this industry because of the export oriented growth by way of acquisitions and marketing alliances in the overseas markets.

However, the generic competition in the US and European markets appeared to be growing tough for Indian exporters since last two years with a sudden drop in margins. In 2007-2008, the generic competition in the world markets has actually started hitting the Indian companies with a sharp fall in their profitability. The worst blow came when the US FDA took action against Ranbaxy, the largest Indian pharmaceutical company, for not maintaining quality norms in its two approved manufacturing facilities in India. The US FDA has imposed a ban on the import of 31 drugs of Ranbaxy in mid September. After the US action, regulatory authorities in Canada, UK and New Zealand are also contemplating stringent regulatory auditing of Ranbaxy's products.

The US action against Ranbaxy and the current financial crisis faced by the US economy are now seriously threatening the export led growth of the Indian pharmaceutical industry. India's exports of pharmaceutical products to the US account for almost 50 per cent of its total exports. With the US government putting pressure on FDA over imports of pharmaceuticals from India and China, inspections by the US FDA are going to be quite rigorous in the approved facilities of Indian companies in the months to come. There are nearly 100 US FDA approved manufacturing facilities of different companies in India at present. In the global pharmaceutical market, US FDA is held in high esteem and most countries depend largely on information from US FDA and European Medicine Evaluation Agency (EMEA) before registering or banning any medicinal products.

All the Gulf countries have US experts in their health ministries to advise them on drug imports. Now, the changed perception of India in the wake of Ranbaxy episode can tighten the regulatory watch on all Indian pharmaceutical products by the advanced countries. Large companies will take abundant caution in their manufacturing standards and practices now onwards even at extra costs. But, a good number of medium and small scale exporters are bound to falter and may lose business in coming days of extreme caution in importing Indian pharmaceuticals. Indian industry has to, therefore, rework its growth strategies in the wake of these new realities in the market place.

Pharmabiz