Wednesday, January 18, 2012

World Bank projects 3.6 per cent growth

The economy will expand by 3.6 per cent in the current fiscal year, says the World Bank in the newly-released Global Economic Prospects 2012.
Though, the government has projected a growth rate of five per cent for the current fiscasl year, the report has reduced the growth forecast due to slower growth in the whole South Asian region.
In the last fiscal year, the country had witnessed a growth of 3.5 per cent.
"Following a vibrant 9.1 per cent growth rate in 2010, real GDP growth in South Asia decelerated to an estimated 6.6 per cent in 2011, with a sharp fall-off evident in industrial production and trade late in the year," it said.
"Nevertheless, regional growth is estimated to have exceeded the long-term average of six per cent (1998-2007), reflecting above trend activity in Bangladesh, India and Sri Lanka. The GDP growth is projected to ease further to 5.8 per cent in 2012 before strengthening to 7.1 per cent in 2013.
Accounting for about 80 per cent of South Asia’s GDP, India has led the regional slowdown as its GDP growth weakened to an estimated 6.8 per cent — at factor cost — in the fiscal year 2011-12, ending in March 2012, from 8.5 per cent in 2010-11. But the growth is projected to hold steady at 6.8 in 2012-13 before accelerating to 8.5 per cent in 2013-14 reflecting moderation in domestic demand, given a deceleration in investment growth that has faced headwinds of rising borrowing costs, high input prices, slowing global growth and heightened uncertainty.
Worker remittances remain a critical source of foreign exchange in South Asia — equivalent to 20 per cent of GDP — as of 2010 — in Nepal, 9.6 per cent in Bangladesh, seven per cent in Sri Lanka and five per cent in Pakistan." If the global conditions were to deteriorate sharply, remittances growth could stall, resulting in weaker incomes, weaker foreign currency earnings and slower domestic demand growth within the region," the World Bank warned.
Financial sector impacts through heightened global risk aversion — reversal of capital inflows, higher international borrowing costs and slowing FDI — are also projected to be felt strongest in India, which is the most integrated with global financial markets, along with the Maldives and Sri Lanka, where 2012 external financing needs — current account financing and external debt repayments — are estimated to reach 9.8 per cent, 18 per cent and seven per cent of GDP, respectively.
"Countries heavily reliant on foreign assistance, like Afghanistan, Nepal and Pakistan, could be hit hard, if fiscal consolidation in high income countries were to result in cuts to overseas development assistance," it added.
Similarly, lack of fiscal space in South Asia, inflationary pressures and consequent limited room for monetary policy easing, fiscal consolidation through greater revenue mobilisation — particularly in Pakistan, Sri Lanka, Bangladesh, and Nepal — and expenditure rationalisation — especially in India — could play a key role in helping to protect critical social programmes.
But it concludes that South Asian countries have the opportunity to re-think and pursue new sources of growth in both domestic and external markets.
However, developing countries should prepare for further downside risks, as Euro Area debt problems and weakening growth in several big emerging economies are dimming global growth prospects, it cautioned, lowering its growth forecast for 2012 to 5.4 per cent for developing countries and 1.4 per cent for high-income countries (-0.3 per cent for the Euro Area), down from its June estimates of 6.2 per cent and 2.7 per cent (1.8 per cent for the Euro Area), respectively. Global growth is now projected at 2.5 per cent and 3.1 per cent for 2012 and 2013, respectively.
Meanwhile, the global economy is now expected to expand 2.5 and 3.1 per cent in 2012 and 2013 (3.4 and four per cent when calculated using purchasing power parity weights), versus the 3.6 per cent projected in June for both years. High-income country growth is now expected to come in at 1.4 per cent in 2012 (-0.3 percent for Euro Area countries, and 2.1 per cent for the remainder) and 2.0 percent in 2013, versus June forecasts of 2.7 and 2.6 per cent for 2012 and 2013 respectively.
Developing country growth has been revised down to 5.4 and six per cent versus 6.2 and 6.3 per cent in the June projections. Reflecting the growth slowdown, world trade, which expanded by an estimated 6.6 per cent in 2011, will grow only 4.7 per cent in 2012, before strengthening to 6.8 per cent in 2013.


The growth
2010-11 — 3.5 per cent
2011-12 — 3.6 per cent
2012-13 — 4.0 per cent
(Source: World Bank, Global Economic Prospect 2012)

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