GDP gravy train running out of steam
World GDP growth, after a robust eight-year stretch, is now set to contract by 1.7 percent this year, the World Bank predicted in its latest edition of Global Economic Prospects.business Updated: Mar 31, 2009 21:47 IST
Multilateral economic agencies on Tuesday painted a sombre picture of the world economy, peering into the prospect of India’s national income growth slipping below 5 per cent in 2009 with global output set to decline for the first time since World War II.
World GDP growth, after a robust eight-year stretch, is now set to contract by 1.7 percent this year, the World Bank predicted in its latest edition of Global Economic Prospects.
As heads of governments convene in London this week for the G-20 summit, the World Bank noted that there may be a weak recovery in 2010, but the pace and timing of recovery remain highly uncertain.
The Asian Development Bank (ADB) echoed similar views projecting India's economic growth to slow to 5 per cent in 2009/10, down from the government’s advanced estimates of 7.1 per cent, but should speed up next year as the global economy recovers.
The World Bank expects India to grow by 4 per cent in 2009 while OECD sees the country growing by 4.3 per cent.
The Asian Development Outlook 2009 (ADO 2009), released on Tuesday, however, warned that prolonged recession in the major industrial economies could hamper India's recovery.
According to latest available official data, India’s GDP grew at 5.3 per cent during the quarter ending December 2008.
“It is imperative that the central Government bring down its deficit in the medium term to a manageable level in order to ensure long-term debt sustainability,” says ADB Acting Chief Economist Jong-Wha Lee.
The Organisation of Economic Cooperation and Development (OECD)’s Economic Outlook Interim Report said that world economic activity to shrink by 2.7 percent. The big emerging economies will also suffer abrupt slowdowns in growth.
The report projected that United States’ GDP would fall by 4 per cent in 2009.
In countries like India and Brazil economic activity is slowing as access to international credit dries up, commodity prices fall and export demand weakens. The stimulus measures taken by governments in response to the crisis will on average boost GDP by around 0.5 percent in 2009 and in 2010, the OECD said.
Much now depends on how the government can use its limited room in fiscal spending, aided by interest rate policies of the RBI, to revive growth.