The Hindu : U.N. projects lower economic growth for India

Online edition of India's National Newspaper
Thursday, Oct 10, 2002

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U.N. projects lower economic growth for India

By Our Special Correspondent

NEW DELHI Oct. 9. The United Nations expects the recent drought and border tensions to slow down economic growth in India during the latter half of 2002. Predicting an overall moderation in growth in South Asia, it says the near-term outlook for the region has deteriorated since mid-2002 because of unfavourable monsoon, weakening external demand, heightened geopolitical uncertainties and rising prices.

The latest U.N. Global Economic Outlook says the overall pace of the GDP growth for the region in 2002 is expected to remain nearly identical to that of 2001 — 4.5 per cent — and to improve in 2003 to 5.5 per cent. Specifically in India's case, it expects the upturn in the pace of the GDP growth earlier in the year to reverse as the summer drought is likely to compress agricultural output and business confidence continues to be eroded by renewed tensions in the region.

The U.N. notes that growth in South Asia improved notably in the first half of 2002. It is not sanguine about the continuance of this uptrend. ``It may continue for some economies, but a few large economies in the region are expected to experience moderation in the second half,'' it says. The rebound in early 2002 was led by India, Pakistan and Sri Lanka, bolstered by rising exports and improving domestic factors such as better harvests, expansionary policies, as well as increased international aid in the case of Pakistan and the end of domestic conflict for Sri Lanka. The near-term outlook for the region, according to the U.N, has deteriorated somewhat since mid-2002 because of unfavourable monsoon, weakening external demand, heightened geopolitical uncertainties and rising oil prices.

It expects growth in Nepal to decelerate due to adverse weather and domestic insurgency. Improved prospects are, on the other hand, expected for Bangladesh, Pakistan, and Sri Lanka. ``While macro-economic policies in the region are expected to remain broadly supportive in general, the outlook for the region as a whole continues to be subject to a number of downside risks, including weather conditions, external demand, and regional and domestic conflicts,'' the U.N. says.

On global growth, the forecast made by economists around the world, is only 1.7 per cent in 2002 and less than 3 per cent in 2003. Particularly hard hit is Latin America, where the GDP is expected to decline by 0.9 per cent in 2002.

The Global Economic Outlook is based on the assessment of Project LINK, a co-operative, non-governmental, international research activity, jointly coordinated by the U.N. Department of Economic and Social Affairs and the University of Toronto.

The new Outlook revises downwards the previous forecasts with the arrival of the peak of the world economic recovery now not expected until mid-2003 rather than later this year. The recovery process is not only more sluggish than previously anticipated but is also subject to additional uncertainties. There are several factors responsible for the changed forecast. These include the impact of heightening geopolitical tensions in West Asia, described as an ``economic wild card''. Second, the decline in equity prices, especially in the U.S., is of historic dimensions in terms of duration and severity. The report foresees that a prolonged continuation of the slide could push recovery beyond mid-2003.

Third, it is generally agreed that the longer external deficits of the U.S. continue, the greater the risk of an abrupt correction and a shock to the world economy. But in the short run, ``strong import demand from the U.S., thus a further widening of the country's trade and current-account deficits, remains desirable'' for a global recovery, the report says.

Finally, the latest debt crisis in Argentina underlines the risks that may arise from financial fragility and debt overhang within nations. Rising geopolitical tensions have also contributed to higher energy prices — the price of oil has risen by more than 50 per cent from January 2002 to the end of September.

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