Global GDP in purchasing power parity terms (PPP) to contract by 1.8% in 2009, a post-second world war low.· Emerging Asia will be the world's fastest-growing region over the next five years (2010-13); India's real GDP growth to average 7.2% over the next five years.
· Growth over the next two years will be marked by a high degree of volatility, with a substantial slowdown of quarter-on-quarter growth rates once stimulus fades; a sharp-quick bounceback may not be sustainable.· India is likely to see negative inflation for three to six months, but it is not a grave concern for India.
An improvement in forward-looking economic indicators in recent weeks has triggered a debate about the possibility of an imminent global recovery, which has in turn helped to boost global share prices. The Economist Intelligence Unit (EIU), the research and advisory arm of The Economist, however, believes that a sustainable recovery is distant. The EIU expects global GDP in purchasing power parity terms (PPP) to contract by 1.8% in 2009, a post-second world war low. Growth in 2010, at 2.1%, will be sluggish and would still qualify as a global recession (commonly defined as growth of less than 3% in PPP terms).
Emerging Asia will be the world's fastest-growing region over the next five years (2010-13), but this mainly reflects a relatively strong growth performance by India and China. The EIU expects India's real GDP growth to average 7.2% over the next five years.
"The worst of the contraction in global GDP is over and we may see some more green shoots of recovery as destocking gives way to inventory rebuilding and fiscal and monetary stimulus starts to have an impact. However, growth over the next two years will be marked by a high degree of volatility, with a substantial slowdown of quarter-on-quarter growth rates once stimulus fades," said Manoj Vohra, Director of Research at the Economist Intelligence Unit.
It is, of course, also possible that the aggressiveness of the global macroeconomic response produces a much sharper snap back in growth over the coming months. However, a sharp bounceback would also create problems for policymakers, who would then have to weigh the merits of tightening macroeconomic policy in order to contain inflationary expectations against the need for continued loose policy as households and the financial sector continue to retrench. "A sharp, quick bounceback may not be sustainable and will ultimately result into a "W-shaped" recovery", said Manoj Vohra of the EIU.
According to the EIU, the risks to the global economy remain high. The most serious concern is that various stimulus packages being implemented globally will not be sufficient to trigger self-sustaining recovery. As government fiscal positions have already deteriorated dramatically, it may not be possible to ramp up further support for the economy if this should prove necessary and an increasing number of countries may even be forced to tighten fiscal policy in order to avert a sovereign crisis.
"Other concerns on global growth in the medium term are continued impaired financial intermediation in many large economies, and higher savings and reduced consumption by US households as they adjust to lower house prices and reduced expectations of future wealth," added Vohra.
The EIU also sees deflation as a serious concern, particularly in developed markets. Sustained deflation will make it more difficult to service debt that was contracted based on assumptions of healthier revenue growth. This could hit the real economy by forcing companies to cut back on investment and employment even more than they are already.
"India is likely to see negative inflation for three to six months, making a case for further rate cuts by the central bank. We expect the repo rate to be cut by a further 50 basis points, to 4.25%, in the next few months," Vohra said.
For India, the EIU says, the biggest risk to growth remains its ballooning fiscal deficit.
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By : News Team
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