As a result, borrowing costs and funding of firms that depend on European financial institutions are adversely affected. If such a situation continues, this could also affect project financing and trade financing in emerging economies. The second channel is as follows. Global investors have become increasingly risk averse, which affects the flow of funds and prices of various assets worldwide.
The high growth emanated from the upsurge in domestic savings rate (23.5 per cent in 2001-02 to 37.7 per cent in 200708) supporting the step up in investment rate (from 22.8 per cent to 39.1 per cent) in an environment of moderate inflation and macro-economic stability.