On 9th October 2015, MDAE hosted Dr. Tom Richardson, Senior Resident Representative for the IMF in India, Nepal and Bhutan, to give a talk on “India and the World Economic Outlook”. Dr. Richardson first discussed the projections for world economies, than he moved the focus to Advanced Economies, Emerging Markets, and India.
Dr. Richardson remarked that forecasts for the world economies were lower than the ones from WEO April 2015. The World Economy is projected to grow at 3.1%, which is slower than what the world was growing 10 years ago. This downcast can be attributed to the ongoing crisis in Brazil, Russia, and the recent slowdown in China because most of the impetus to global growth comes from emerging markets. Projections for Brazil’s GDP growth rate were reduced by 2%, whereas China and India show steady growth projections, with India’s forecasted GDP growth rate reduced by just 0.2% to 7.3%, the highest growth rate in the world.
In the case of Advanced Economies, the outlook is not bad but very uneven. The US is showing signs of a healthy recovery, and is expected to increase its interest rate from zero soon. This brought light to a very interesting point about monetary policy coordination – any change in monetary policy in the US has a big impact on the world, especially emerging markets; however, economies all over the world have failed to find a way to coordinate their monetary policies in such a way that there are no unnecessary spillover effects.
The Euro Area shows modest signs of recovery, largely aided by the low oil prices. The overall economic sentiment has increased for the Eurozone countries, except for Greece which continues to deal with its huge debt crisis after defaulting on an IMF loan in June. Japan, on the other hand, remains the weakest link in the group of advanced economies and shows very little sign of recovery owing to a slowdown in the last quarter.
When it comes to Emerging markets, the economies of China and Brazil show worrying signs. The volatility in the Chinese stock market, as well as movements in the exchange rate, were unexpected and caused a turmoil in markets all over the world. Moreover, with the decline in commodity prices and reduction in trade volumes, any slowdown in China can have various negative effects to economies in the world. This reasserts the fact that China is effectively as important as the US in the world economy. Despite these worrying signs, the projections for China are robust because the Chinese authorities have always managed to tackle economic problems. Brazil, on the other hand, is facing a serious crisis with high interest rates, unemployment and inflation with a very slow growth rate.
Finally, in the case of India, the projections are fairly optimistic. India is not too exposed to China in terms of exports. But a slowdown in China is not good for India due to global interlinkages. Currently, India is facing two problems:
- High fiscal deficit of 7% (owing to a low government revenue of 18-20% compared to a 25% in other Asian economies who spend as much as the Indian general government)
- A high level of corporate debt (both non-performing assets and restructured loans). However, positive reforms are on the way to solve these problems. For instance, the implementation of Goods and Services Tax will broaden the tax base in India and lead to higher tax revenues, which will be much more effective than just increasing the tax rate.
- The global outlook, although a bit more pessimistic than it was earlier this year, is decent yet uneven.
- Japan has to implement reforms to stimulate growth whereas Russia and Brazil have to tackle their respective economic crises.
- China is experiencing a slowdown but is expected to grow at a robust rate.
- Lastly, India, despite facing a couple of problems, is the fastest growing economy in the world.
To download the detailed presentation please click here.
Date(s) - 09/10/2015
4:00 pm - 6:00 pm