Is 2014 likely to bring the global economy out of crisis?

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As the year 2012 and 2013 was the year of damage control, 2014 is widely believed by the economist as the year of hope for sluggish economies, the ongoing unemployment and financial crisis has caused much of havoc in the world, The International Monetary fund (IMF) projected the gross world product(GWP), the cumulative GDP’s of the world to grow at a sluggish 2.9% last year, The International Monetary Fund expects the growth of the global economy will accelerate to 3.6 percent in 2014 from 2.9 percent in 2013.

The EU suffered the much of the wrath of the financial crisis by trying to bail out Portugal, Ireland, Greece, Spain which got the sobriquet PIGS, Greece and Spain faced maximum wrath of the crisis with Greece where the a stable government could’nt be formed by having elections thrice in a year, Spain had a massive unemployment rate where 3 out 10 youngsters face the problem of being jobless, U.S.A did better last year thanks to the much-heralded energy boom as a result of shale gas extraction and a rebirth of manufacturing after decades of de-industrialization and outsourcing. But the struggles over regulating Wall Street and preventing too-big-to-fail  financial  behemoths from yet again dragging  the  entire American  economy down  with  them  are still works in progress. The completion of the Volcker Rule under the Dodd-Frank  Act  is  a step in the right direction, provided regulatory  institutions  diligently enforce rules on major  banks.  Otherwise, 2014 could produce more unforeseen shocks.The record settlement of $14 billion imposed by the US government on JPMorgan for mortgage fraud may be a harbinger of more such prosecutions this year by the Barack Obama administration, which is less beholden to Wall Street money in its second and final term in office .As in Europe, political sparring over budgets and state spending have become an embarrassing reality holding the US economy hostage every few months. The recent compromise between Democrats and Republicans on fiscal issues does not guarantee a smooth 2014, which is a high-voltage Congressional election year. The government shutdown last year demonstrated that America can be its worst ene-my and that “political silliness” can be the new normal. Among OECD members,  the  Japanese economy was the star of 2013 under the forceful  influence  of  Abe-nomics.  Shinzo  Abe, the prime minister, deployed ambitious stimulus spending to revive healthy  growth  and stop  two  decades  of hemorrhaging.  The jury  is  still  out  on whether the Japanese private sector can take

up the baton and keep charging  ahead  or  if Abenomics would repeat the wasteful public works experiments of the 1990s which created excess capacity. Can Abe overhaul the deep rooted structural problems of the Japanese economy such as low consumer demand, ageing population and high wages? 2014 will be a year that decides whether Abenomics was a flash in the pan or a new dawn for the land of the rising sun. –Economic times, Sreeram chaulia.

 

Growth prospects among large developing countries and economies in transition are mixed. Growth in Brazil has been hampered by weak external demand, volatility in international capital flows and tightening monetary policy, but growth is expected to rebound to 3 per cent in 2014. A slowdown in China has been stabilized and growth is expected to maintain at a pace of about 7.5 per cent in the next few years. India experienced its lowest growth in two decades, along with large current account and government budget deficits plus high inflation, but growth is forecast to improve to above 5 per cent in 2014. In the Russian Federation growth weakened further in 2013, as industrial output and investment faltered, and is expected to recover modestly to 2.9 per cent in 2014.

Among developing regions, growth prospects in Africa remain relatively robust. After an estimated growth of 4.0 per cent in 2013, GDP is projected to expand by 4.7 per cent in 2014. The report emphasized the dependence of Africa’s growth on investment in infrastructure, trade and investment ties with emerging economies, and improvements in economic governance and management. More detailed regional forecasts from WESP will be released in January 2014.- UN.org

India is projected to see moderate average annual growth of 5.9 per cent during the 2014-18 period amid the country witnessing macroeconomic weaknesses, according to Paris-based think tank OECD.

The forecast for India is much lower than OECD’s estimated growth of 6.9 per cent for overall Emerging Asia during the same period.

Emerging Asia comprises Southeast Asian nations, China and India.

The Organisation for Economic Cooperation and Development (OECD) said in its report released today that growth in Emerging Asia would remain robust over the medium term, anchored by the steady rise in domestic demand.

“As a whole, the Emerging Asian economies are expected to grow by 6.9 per cent per annum in 2014-18. It is a robust pace, albeit less than the 8.6 per cent registered before the global financial crisis (2000-07). This slower rate of growth largely reflects the moderate rates of expansion in the two largest Emerging Asian economies of China and India,” the economic outlook report said.

With regard to India, OECD said the country’s growth is expected to moderate to 5.9 per cent during 2014-18 period, compared to 7.1 per cent between 2000-07.

“… there are signs of macroeconomic weaknesses, particularly in India and Indonesia, where persistent current account deficits warrant concern,” it noted.

India’s current account deficit stood at 4.9 per cent of the GDP in the three months ended June.

Economic growth rate slipped to a decade low of 5 per cent in 2012-13 and declined to 4.4 per cent in the first quarter (April-June) of the current financial year.

In the current fiscal ending March 2014, the Reserve Bank of India expects the economy to expand by 5-5.5 per cent.

Even though Indian economy has developed quickly in the last decade, OECD said that however “circumstances have become less conducive to growth.”

“… macroeconomic conditions in the developed economies point to a prolonged external slowdown, while domestic constraints such as high inflationary pressures and rising fiscal and current account deficits have emerged,” it noted.

The OECD report has been released ahead of the ASEAN and East Asia Summits here this week, which will be attended by Prime Minister Manmohan Singh and other world leaders.

As per the report, volatility in financial markets, triggered by the prospects of tapering of quantitative easing policy in the US, is a key imminent downside risks facing Emerging Asia.

“Managing international capital flows while ensuring sustainable economic growth will continue to be a key medium term macroeconomic policy challenge facing emerging Asian economies,” it added.- The hindu October 8, 2013.

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