World economy to grow at 3.4 p.c. in 2007
East and South Asia fastest growing regions
Reversal in housing market decelerates U.S. growth
NEW DELHI: In a conservative estimate, the United Nations Conference on Trade and Development (UNCTAD) on Wednesday projected an economic growth of 8.5 per cent for India in the current fiscal, even as the country has already notched up a GDP growth of 9.3 per cent in the first quarter.
Although UNCTAD’s forecast for this fiscal is based on the quick official estimates of 9.2 per cent economic growth in 2006-07, which was later revised upwards by the Central Statistical Organisation (CSO) to 9.4 per cent, the UN agency’s estimate is in keeping with the 8.5 per cent growth projected by the Reserve Bank of India.
Releasing the UNCTAD Trade and Development Report, 2007 here, Nagesh Kumar, Director-General of Research and Information System for Developing Countries, said: “These are just preliminary figures… I am happy that economists have been proved wrong [in their estimates of Indian economic growth].”
With better-than-anticipated growth achieved during the first quarter this fiscal, he said that, as per his personal assessment, he saw no reason why the country’s economy should grow at less than nine per cent during 2007-08.
Despite the impressive performance, India’s growth story still lags behind that of China, the northern neighbour having witnessed over 10 per cent growth each year since 2003. For the current calendar year, the Chinese economy is set grow by 10.5 per cent on top of a high base of 10.7 per cent.
Not surprising then that UNCTAD has identified East and South Asia to be the fastest growing economic regions in the world, mainly owing to the robust performances by China and India. In fact, other countries in East, South and Southeast Asia have also benefited from the dynamism of the two economies, especially the high investment ratios of over 40 per cent of the GDP in China and nearly 30 per cent in India.
Turning to the rest of the globe, the report noted that the high economic growth in East and South Asia and other regions, barring the U.S., was leading to vigorous world economic growth for the fifth year in a row.
Projecting the world economy to grow at 3.4 per cent during 2007 as against four per cent in 2006, UNCTAD has attributed the year-on-year decline in growth to a slowdown in the US economy. In effect, the growth rates in the other regions, including developing and transition economies, should remain more or less the same as in 2006. The deceleration in US growth, it said, was primarily on account of a reversal in the previously booming housing market.
Given the higher long-term interest rates, there is a possibility of an outright contraction in house prices that might further erode the solvency of private households and precipitate a reduction in private consumption in the U.S., the report said.
The report pointed out that the main risks for continued global economic expansion emanated from the failure to address current global imbalances while warning that the global outlook would be rather bleak if the current slowdown in the U.S. deepens to push the economy into a recession and if the main surplus countries — despite appreciation of their currencies — fail to initiate much greater expansionary policies based on domestic demand.