Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Politics / Policy/  India oasis of hope amid sluggish global growth projections
BackBack

India oasis of hope amid sluggish global growth projections

Global economic growth will be disappointing next year and the outlook for the medium-term has also deteriorated, says IMF chief Christine Lagarde

Christine Lagarde said the prospect of rising interest rates in the US and an economic slowdown in China were contributing to uncertainty and a higher risk of economic vulnerability worldwide. Photo: BloombergPremium
Christine Lagarde said the prospect of rising interest rates in the US and an economic slowdown in China were contributing to uncertainty and a higher risk of economic vulnerability worldwide. Photo: Bloomberg

New Delhi: As 2015 draws to a close, the outlook for global growth looks negative. On Wednesday, International Monetary Fund (IMF) managing director Christine Lagarde raised concerns over the issue.

Global economic growth will be disappointing next year and the outlook for the medium-term has also deteriorated, she said in a guest article for German newspaper Handelsblatt published on Wednesday, Reuters reported.

Lagarde said the prospect of rising interest rates in the US and an economic slowdown in China were contributing to uncertainty and a higher risk of economic vulnerability worldwide.

Recent Reuters surveys of hundreds of analysts worldwide also do not offer hope for a pick-up in inflation, even in the US where the central bank says it is reasonably confident this will happen. Even the most optimistic core inflation forecasts are not far above 2%.

US Federal Reserve chairperson Janet Yellen, meanwhile, has been generally upbeat, spelling out how the economy has largely met the criteria the Fed has set for its first rate hike. Unemployment is low, growth continues at a modest pace, and Yellen said she was confident inflation would return to the Fed’s target over time.

Although weak global growth remained a drag, she said the US was far more dependent on domestic consumption and investment, which, at least so far, has been strong enough to produce growth that was slightly above trend.

Though the Reuters polls point to global growth averaging only 3.4% next year with scant prospect of touching 4%, given the slowdown in China and the gloom surrounding emerging markets, India seems to be on a better footing.

Last week, World Bank chief economist Kaushik Basu said amidst sluggish global growth, the US and India are two engines of growth with India anticipated to be among the fastest growing major economies in the world.

Addressing the 98th annual conference of the Indian Economic Association (IEA), Basu said, “Global growth is sluggish. The world economy is expected to grow barely by 2.5%."

He noted that Russia is in recession and its GDP is actually shrinking by about 4%. Among the BRICS (Brazil, Russia, India, China and South Africa) nations, only China and India are growing around and below 7%, while Brazil’s GDP is declining by about 3.5% and South Africa is barely growing.

Research by Harvard University seconds his view. The Indian economy has the potential to be the world’s fastest growing economy over the coming decade, surging ahead of its South Asian economic rival China that will continue to see a slowdown, according to the Harvard University research.

Earlier in December, Moody’s Investors Service issued a statement that the world’s economies are recovering from the financial crisis, but almost all regions have shown a downward trend from pre-crisis growth rates.

A new economic reality of lower oil and commodity prices, lower growth in Asia and a normalizing US interest-rate environment represent an inflection point for the global economy. These developments will likely result in a volatile global environment that will have both regional and country-specific ramifications.

“The global economy is recovering, but there are some wide regional disparities," said Gabriel Torres, vice-president and senior credit officer at Moody’s. “Current and prospective growth rates are still generally lower than before the financial crisis."

A report by Fitch ratings agency published in mid-December said the sharp slowdown in the world’s second-largest economy, China, would hit global growth hard, and warned of “significant knock-on effects" for the rest of the world.

A sharp slowdown in China’s GDP growth rate to 2.3% during 2016-2018 “would disrupt global trade and hinder growth, with significant knock-on effects for emerging markets and global corporates. In turn, this would keep short-term interest rates and commodity prices lower for longer", the report warned.

The United Nations, too, has not been very optimistic.

The world economy has fallen below forecasts of even six months ago and will grow only modestly over the next two years due to “cyclical and structural headwinds", including low commodity prices and stagnant investment, the UN reported in December, urging steps to ensure stronger growth.

The UN cut its forecast for global economic growth in 2015 by 0.4 percentage point to 2.4%, largely due to lower commodity prices, increased market volatility and slow growth in emerging market economies, but added that there will be a slight pick-up next year.

“The world economy is projected to grow by 2.9% in 2016 and 3.2% in 2017, supported by generally less restrictive fiscal and still accommodative monetary policy stances worldwide," the UN said in a statement accompanying its annual World Economic Situation and Prospects report.

In its latest 2015 Global Economic Prospects report, released in June 2015, the World Bank laid out the challenges. Developing countries face a series of tough challenges in 2015, including the looming prospect of higher borrowing costs in a new era of low prices for oil and other key commodities. This will result in a fourth consecutive year of disappointing economic growth this year, said the report. Developing countries are now projected to grow by 4.4% this year, with a likely rise to 5.2% in 2016, and 5.4% in 2017.

“Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment," said World Bank Group President Jim Yong Kim.

In an interview with the Nikkei, Jean-Claude Trichet, former president of the European Central Bank, predicted only modest global growth in 2016. “I have the sentiment that the year 2016 will be a year of modest growth, a little bit better than in 2015, but not very flattering. Both the US and Europe should grow a little bit faster in 2016," he said.

In a different view, the research team at Deutsche Bank suggested that the growth in global economic activity is now projected to bottom this year and rise gradually toward trend by 2017, led primarily by an acceleration in emerging market economies.

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!

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 31 Dec 2015, 12:39 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App