New Delhi:
The GDP growth in India will accelerate to 6.1 per cent in 2013 and 6.5 per cent in 2014, as a result of stronger growth of exports and capital investment, according to World Economic Situation and Prospects 2013 report.
The report said that investment demand is expected to respond to a more accommodative monetary policy stance and slightly improved business confidence, a India’s economy, which represents almost three quarters of the region’s GDP, slowed markedly in the past two years. Annual growth declined from more than 9 per cent in 2010 to 5.5 per cent in 2012, the slowest pace in 10 years, the report said.
The slowdown reflected weaker consumption and investment demand as a result of persistent inflation, high nominal interest rates, large fiscal deficits and political gridlock, the report said. These factors will likely continue to impact economic growth in the next two years even as a moderate recovery is expected.
Global outlook grim:
The report also warned that a worsening of the euro area crisis, the “fiscal cliff” in the United States and a hard landing in China could combine to cause a new global recession.
First, the economic crisis in the euro area could continue to worsen and become
more disruptive. The ongoing perilous dynamics between sovereign debt distress
and banking sector fragility are deteriorating the balance sheets of both Governments and
commercial banks. The fiscal austerity responses are exacerbating the economic downturn,
inspiring self-defeating efforts at fiscal consolidation and pushing up debt ratios, thereby
triggering further budget cuts. The situation could worsen significantly with delayed implementation
of the Outright Monetary Transactions programme and other supports for
those members in need. Such delays could come as a result of political diffi culties in reaching
agreement between the countries in need of assistance and the troika of EU, ECB and
IMF, and/or much larger detrimental effects of the fiscal austerity programmes and more
diffi culties in structural adjustments than anticipated. In such a scenario, as simulated
through the United Nations World Economic Forecasting Model, the euro area could
suffer an additional cumulative output loss of more than 3 per cent during 2013-2015 and
the world as a whole of more than 1 per cent.
Second, the United States could fail to avert the so-called fiscal cliff. A political
gridlock preventing Congress from reaching a new budget agreement would put automatic
fiscal cuts in place, including a drop in government spending by about $98 billion and
tax increases of $450 billion in 2013; taken over 2013-2015, the automatic fiscal austerity
would amount to about 4 per cent of GDP. In the fiscal cliff scenario, world economic
growth would be halved to 1.2 per cent in 2013 and by 2015 global output would be 2.5
per cent lower than in the baseline projection. The output loss for developing countries
would be about 1 per cent.
A third downside risk is the possibility of a hard landing of the economies of
one or more of the large developing countries, including China. Growth slowed noticeably
during 2012 in a number of large developing economies, such as Brazil, China and
India, that had enjoyed a long period of rapid growth prior to the global financial crisis
and managed to recover quickly at a robust pace in 2010 after the Great Recession. Given
the uncertainties about their external demand and various domestic growth challenges,
risks of further and larger-than-expected declines in the growth of these economies are
not trivial. In the case of China, for instance, exports continued to slow during 2012,
owing to weak demand in major developed economies. Meanwhile, growth in investment,
which contributed to more than 50 per cent of GDP growth in the past decade, has been
decelerating. The reasons for this are tighter housing market policies, greater caution regarding
fiscal stimulus measures, and financing constraints faced by local governments in
implementing new projects. Because of these factors, there are substantial risks for much
lower GDP growth in China. If economic growth in China would slow to about 5 per cent
per year (caused by a further deceleration in investment growth, continued tightening of
the housing market and absence of new fiscal stimulus), developing countries as a group
could suffer a cumulative output loss of about 3 per cent during 2013-2015 and the world
as a whole of about 1.5 per cent.
The GDP growth in India will accelerate to 6.1 per cent in 2013 and 6.5 per cent in 2014, as a result of stronger growth of exports and capital investment, according to World Economic Situation and Prospects 2013 report.
The report said that investment demand is expected to respond to a more accommodative monetary policy stance and slightly improved business confidence, a India’s economy, which represents almost three quarters of the region’s GDP, slowed markedly in the past two years. Annual growth declined from more than 9 per cent in 2010 to 5.5 per cent in 2012, the slowest pace in 10 years, the report said.
The slowdown reflected weaker consumption and investment demand as a result of persistent inflation, high nominal interest rates, large fiscal deficits and political gridlock, the report said. These factors will likely continue to impact economic growth in the next two years even as a moderate recovery is expected.
Global outlook grim:
The report also warned that a worsening of the euro area crisis, the “fiscal cliff” in the United States and a hard landing in China could combine to cause a new global recession.
First, the economic crisis in the euro area could continue to worsen and become
more disruptive. The ongoing perilous dynamics between sovereign debt distress
and banking sector fragility are deteriorating the balance sheets of both Governments and
commercial banks. The fiscal austerity responses are exacerbating the economic downturn,
inspiring self-defeating efforts at fiscal consolidation and pushing up debt ratios, thereby
triggering further budget cuts. The situation could worsen significantly with delayed implementation
of the Outright Monetary Transactions programme and other supports for
those members in need. Such delays could come as a result of political diffi culties in reaching
agreement between the countries in need of assistance and the troika of EU, ECB and
IMF, and/or much larger detrimental effects of the fiscal austerity programmes and more
diffi culties in structural adjustments than anticipated. In such a scenario, as simulated
through the United Nations World Economic Forecasting Model, the euro area could
suffer an additional cumulative output loss of more than 3 per cent during 2013-2015 and
the world as a whole of more than 1 per cent.
Second, the United States could fail to avert the so-called fiscal cliff. A political
gridlock preventing Congress from reaching a new budget agreement would put automatic
fiscal cuts in place, including a drop in government spending by about $98 billion and
tax increases of $450 billion in 2013; taken over 2013-2015, the automatic fiscal austerity
would amount to about 4 per cent of GDP. In the fiscal cliff scenario, world economic
growth would be halved to 1.2 per cent in 2013 and by 2015 global output would be 2.5
per cent lower than in the baseline projection. The output loss for developing countries
would be about 1 per cent.
A third downside risk is the possibility of a hard landing of the economies of
one or more of the large developing countries, including China. Growth slowed noticeably
during 2012 in a number of large developing economies, such as Brazil, China and
India, that had enjoyed a long period of rapid growth prior to the global financial crisis
and managed to recover quickly at a robust pace in 2010 after the Great Recession. Given
the uncertainties about their external demand and various domestic growth challenges,
risks of further and larger-than-expected declines in the growth of these economies are
not trivial. In the case of China, for instance, exports continued to slow during 2012,
owing to weak demand in major developed economies. Meanwhile, growth in investment,
which contributed to more than 50 per cent of GDP growth in the past decade, has been
decelerating. The reasons for this are tighter housing market policies, greater caution regarding
fiscal stimulus measures, and financing constraints faced by local governments in
implementing new projects. Because of these factors, there are substantial risks for much
lower GDP growth in China. If economic growth in China would slow to about 5 per cent
per year (caused by a further deceleration in investment growth, continued tightening of
the housing market and absence of new fiscal stimulus), developing countries as a group
could suffer a cumulative output loss of about 3 per cent during 2013-2015 and the world
as a whole of about 1.5 per cent.
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