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Home / Bioethanol / News Analysis - India, China, Russia:next drivers of world growth Asia Pulse NEW DELHI, Jan 16 Asia Pulse — Commerce and Industry Minister Kamal Nath has his pet theme these days: the mass of global economic architecture is shifting to Asia, particularly the emerging economies. Nath repeats his refrain so often that one wonders whether it is all about his sentiments. But then, India's trade minister seems to know what he is talking about. Chinas economy is set to grow by 11.5 per cent in 2007 while India and Russia continued to grow very strongly. These three countries alone have contributed one-half of global growth over the past year, as per the October assessment of the International Monetary Fund. Though turbulent conditions in the world financial markets, triggered by the housing related sub-prime crisis in the US, have been hitting the headlines for the past several months, the global economy is projected to grow by 5.2 per cent in 2007. The impact of the global financial problems and possible slowdown in the developed markets would be seen in 2008 when the world economy is likely to grow by a shade lower at 4.8 per cent. The largest downward revisions to growth are in the United States, which is now expected to grow at 1.9 per cent, the IMF said. The world economy was powered so much by emerging markets of China, Russia and India that the problems in the advanced countries were balanced by the Asian economic engines. The global economy expanded rather vigorously in the first half of 2007, with growth running above five per cent. Chinas economy gained further momentum, growing by 11.5 per cent, while India and Russia retained their steam. Growth also continued in other emerging markets and developing countries, including low-income countries in Africa. Among the advanced economies, growth in Western Europe and Japan slowed in the second quarter of 2007 after two quarters of strong gains. In the US, the growth averaged 2.25 per cent in the first half of the year coming to an end. While the advanced countries were able to contain inflation in larger parts of the year, the price rise, especially of food items and crude oil, has become a matter of concern for the global economy. Prime Minister Manmohan Singh sounded a warning about the global pressure on food supplies asking his countrymen to be prepared for expensive edible items. I will be failing in my duty if I do not draw your attention to the impending problem of food security. The next decade is going to be one in which our food security will be under stress. Global trends in food production and prices and our own patterns of consumption are going to put increasing pressure on both the availability and prices of basic food items, Singh said at the meeting of the National Development Council, convened on December 19 to approve the 11th Five Year Plan. Finance Minister P Chidambaram echoed similar views. A grave challenge that faces us as well as many countries of the world — is the availability of food and the rise in food prices. Many observers have pointed out that the era of cheap food prices is over, Chidambaram said. Inflation picked up in a number of emerging market and developing countries, reflecting strong growth of domestic demand and the greater weight of rising food prices in the consumer price index. The acceleration in food prices has reflected pressure from increasing use of corn and other food items for biofuel production as well as poor weather conditions and supply disruptions in a number of countries. On top of it all, oil prices touched new high, presently around 90 dollars to a barrel. This was attributed to stronger growth of demand than initially projected in the face of lower production by the Organisation of Petroleum Exporting Countries (OPEC). Financial market conditions became more volatile as the year ran into the second half. Credit conditions tightened with increasing concerns about the fallout from the crisis-ridden US subprime mortgage market. Equity markets initially reacted led by falling valuations of financial institutions. Prices have since recovered. Emerging markets have also been affected, though the impact was less than on previous such occasions of global financial turbulence. This resilience reflects two sets of factors. First, the turbulence has been related to setbacks in markets for innovative credit instruments and in institutional structures that are less prevalent in emerging markets. Second, most emerging market countries have reduced external vulnerabilities by strengthening their public balance sheets and policy frameworks, the IMF said. Several emerging market and developing countries saw historically high levels of net foreign exchange inflows, through both current and capital accounts. Gross flows have risen sharply in the past few years — to levels twice as high as at the previous peak in 1996. Experts feel that inflows are projected to be maintained at high levels in the aggregate, notwithstanding recent financial market turbulence. Despite the hiccups, the global economic growth remains solid in the region of five per cent, supported by generally sound fundamentals and strong momentum in emerging markets. The current global expansion has been the period of strongest growth since the early 1970s. Global growth remained above five per cent in the first half of 2007. China, for the first time, made the largest contribution to global growth evaluated at market as well as purchasing-power-parity (PPP) exchange rates. India continued to grow at more than nine per cent and Russia at almost eight per cent. Rapid growth in these countries counterbalanced continued moderate growth in the United States, which grew at about 2.25 per cent in the first half 1 percentage point off GDP growth in the past year. While the growth in Asia can certainly act as a counter-balance to the sluggish trends in the US and West Asia, we cannot expect total de-coupling. RBI Governor Y V Reddy was also not sure what kind of impact would be there on Asian economies by developments in the rest of the world. «The possible impact of adverse developments, if they happen, on the real sector is, however, less clear. While some hold that any slowdown in the US will impact Asia adversely, since Asia's exports to the US are large, others hold that some de-coupling has occurred in view of the growing intra-Asia regional trade. It is also argued that intra-regional trade in Asia is linked to exports to the US. A more plausible scenario would be that slow down in the US, if it takes place would to some extent, dampen the growth in Asian economies, but to the extent there has been some elements of decoupling, which may be country specific also, the impact may be moderated. In other words, it will be unrealistic to hold that Asia can substitute for the US as the major engine of global growth at this stage. Hence, heightened vigilance among Asian central banks appears to be common,» Reddy said in his recent lecture in Mauritius. (PTI)
Date: 14.01.2008 Leave your comment
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