India to spur world GDP growth
India to spur world GDP growth
The report says the current crisis is “the most dangerous shock in mature financial markets since the 1930s". It’s difficult to see how that squares with the 3% growth rate in world GDP forecast for next year.
In 2001, after the technology bust, the global economy grew by a mere 2.2%. During the recession of the early 1990s, global GDP growth was 1.45% in 1991, 2.02 in 1992 and 2% in 1993, before bouncing back to 3.37%.
So, why does IMF estimate that growth will be stronger during the current downturn than in the previous ones?
Higher growth in India may have something to do with it.
In 2009, China and India are expected to grow at 9.2% and 6.9% respectively. Contrast that with the 2001 recession, when China grew at 8.3% and India 3.8%.
Also See Better Than Last Time? (Graphic)
In 1991, 1992 and 1993, China grew at 9.2%, 14.2% and 14%, respectively, while India grew at the much more sedate pace of 2.1%, 4.3% and 4.9%.
Simply put, the higher estimates of Indian growth during the current downturn are expected to cushion the global economy.
There is, however, one factor that is different in the current downturn—the rate of inflation.
IMF estimates India’s consumer price inflation to be 6.7% in 2009 and China’s to be 4.3%. That’s much higher than the inflation during the previous downturn. In 2001, consumer price inflation in India was 3.7% and in China, 0.75%.
Higher inflation could inhibit the central banks’ ability to stimulate growth by cutting rates.
Interestingly, while IMF had predicted in April that growth would bounce back to the 2007 level of 4.9% by 2011, its current forecast does not predict a return to that elevated level even in 2013. For India, GDP growth is estimated to be 6.9% in 2009 and 7.7% in 2010, which would rise to 7.9% by the next year. Does IMF believe that the halcyon days of 2006 and 2007 will not return in the foreseeable future?
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!