Dr BK Mukhopadhyay
T he global liquidity crisis that erupted in the international financial sector has engulfed the real economy as well. The real GDP growth has been going down over the years — 5.1 per cent in 2006; 5.2 per cent in 2007; 3.4 percent in 2008 and 0.5 per cent in 2009.
Global liquidity crunch has turned acute since mid-September 2008 and the super cyclone is yet to be weakened. Projections for world output, which could impact global demand, continue to go from bad to worse. 2009 is going to be a bad year for the global economy.
Little bit of changes which are being currently noticed cannot be taken as the beginning of an upwardly rising curve because a comprehensive view speaks of something else. In 2009, for the first time in 60 years, global activity is expected to contract. World trade is projected to decline sharply in 2009 and recovery in international commodity prices is unlikely in the near future.
In fact the outlook on the global economy and trade has been moving steadily from bad to worse. The World Bank’s forecast on growth in world GDP in 2009 deteriorated sharply — from 0.9 per cent in November 2008 to -1.7 per cent in March 2009. Global trade volume in goods and services are expected to drop to 6.1 per cent in 2009 with a significantly sharper contraction in trade volumes of manufactured products. In the international markets, prices are expected to remain subdued and the IMF rightly observed that commodity prices are unlikely to recover while global activity is slowing.
So far as the developing countries are concerned, the World Bank says deterioration in conditions has brought investment growth in the developing countries to a halt, and in many developing economies investment is sharply declining. Capital spending has been on the wane globally. Capital inflows have gone down, which in turn contributed to decline in investment growth.
Some silver lining has obviously been there, but that is mainly due to government-backed stimulus measures. For example, in India the Government has already announced three stimulus as well as trade facilitation packages so as to provide relief to the beleaguered exporting communities (mainly in the form of procedural simplifications plus provisions for incentives). To what extent these measures could help prop up the external sector is being keenly watched as decline in exports has been a result of fall in global demand. As per World Bank projections, the South Asian region would grow by 3.7 per cent (the earlier projection was 5.4 per cent) as compared to 5.6 per cent achieved in 2008. It has been opined that though the terms of trade have moved in favour of this region with the fall-off in oil prices, yet the demand in exports markets (inclusive of the burgeoning Indo-Sino trade) is being steadily experienced, as is a tempering of services exports from India’s high-tech centres.
What is more, judging from the current happenings and trends of events, the very possibility of trade protectionism cannot be ruled out. Not only the developed block, even small developing countries are also eyeing and exploring such practices this way or that way. While the developed block seems to be in the driver’s seat on trade-related issues (the WTO still hanging in balance and some of the developing players are still not that vociferous on the issue of removal of subsidies), the developing block often engages itself in infighting on such issues (China moved the WTO against India on toy-related business) and regional trading blocks/economic integration. In fact the recession faced by most developed countries and the decline in exports by developing countries has raised this spectre of protectionism more. Even the WTO chief has opined that ‘‘global commerce was in the danger of an incremental build-up of restrictions that could slowly strangle international trade and undermine worldwide attempts to boost demand and restore growth projected in the world economy in 2010.’’
To what extent the oil prices could give relief is a matter of doubt: the experience of the last couple of years leaves much to be desired, which in turn will be telling upon the growth of passenger transport. In India, already oil marketing companies raised the ATF prices for the second consecutive fortnight on April 1, and naturally the civil aviation sector would be affected. The IMF in its World Economic Outlook released in January 2009 projected a 48.5 per cent decline in international crude oil prices and a 29 per cent fall in non-fuel commodity prices in 2009. For countries like India, this means a fall in realization for its exports of petroleum and non-petroleum products.
An assessment as to the plight can be gauged from the World Bank/IMF findings: global output is projected to contract and advanced economies are to suffer deeper recession in 2009. The world economy is to contract by 0.5 to 1 per cent in 2009 before recovering gradually in 2010. The IMF emphasized that downside risks would continue to dominate.
The WTO in its recent release (March 30, 2009) projected the volume of world trade to decline by as much as nine per cent! Any contraction in world output would invariably lead to a sharp fall in global demand and thus on global trade flows. The WTO has assessed that exports by the developed countries are to fall by as much as 10 per cent while those of developing countries would go down by two-three per cent. There are hard days ahead.
Since we have entered the tunnel, we have to come out of it in one way or the other. This great recession has many roots, and as such there does not and cannot be an overnight solution. A pro-active fiscal policy backed by further monetary easing is the immediate need, among others. There is still room for lower interest rate regime in countries like India and such opportunities should be made full use of. There is simply no short-cut solution to the ongoing crisis, and the mistakes of the developed block cannot be set right by the developing block alone, though global cooperation is a must.
(The writer is a noted management economist) THE SENTINEL
T he global liquidity crisis that erupted in the international financial sector has engulfed the real economy as well. The real GDP growth has been going down over the years — 5.1 per cent in 2006; 5.2 per cent in 2007; 3.4 percent in 2008 and 0.5 per cent in 2009.
Global liquidity crunch has turned acute since mid-September 2008 and the super cyclone is yet to be weakened. Projections for world output, which could impact global demand, continue to go from bad to worse. 2009 is going to be a bad year for the global economy.
Little bit of changes which are being currently noticed cannot be taken as the beginning of an upwardly rising curve because a comprehensive view speaks of something else. In 2009, for the first time in 60 years, global activity is expected to contract. World trade is projected to decline sharply in 2009 and recovery in international commodity prices is unlikely in the near future.
In fact the outlook on the global economy and trade has been moving steadily from bad to worse. The World Bank’s forecast on growth in world GDP in 2009 deteriorated sharply — from 0.9 per cent in November 2008 to -1.7 per cent in March 2009. Global trade volume in goods and services are expected to drop to 6.1 per cent in 2009 with a significantly sharper contraction in trade volumes of manufactured products. In the international markets, prices are expected to remain subdued and the IMF rightly observed that commodity prices are unlikely to recover while global activity is slowing.
So far as the developing countries are concerned, the World Bank says deterioration in conditions has brought investment growth in the developing countries to a halt, and in many developing economies investment is sharply declining. Capital spending has been on the wane globally. Capital inflows have gone down, which in turn contributed to decline in investment growth.
Some silver lining has obviously been there, but that is mainly due to government-backed stimulus measures. For example, in India the Government has already announced three stimulus as well as trade facilitation packages so as to provide relief to the beleaguered exporting communities (mainly in the form of procedural simplifications plus provisions for incentives). To what extent these measures could help prop up the external sector is being keenly watched as decline in exports has been a result of fall in global demand. As per World Bank projections, the South Asian region would grow by 3.7 per cent (the earlier projection was 5.4 per cent) as compared to 5.6 per cent achieved in 2008. It has been opined that though the terms of trade have moved in favour of this region with the fall-off in oil prices, yet the demand in exports markets (inclusive of the burgeoning Indo-Sino trade) is being steadily experienced, as is a tempering of services exports from India’s high-tech centres.
What is more, judging from the current happenings and trends of events, the very possibility of trade protectionism cannot be ruled out. Not only the developed block, even small developing countries are also eyeing and exploring such practices this way or that way. While the developed block seems to be in the driver’s seat on trade-related issues (the WTO still hanging in balance and some of the developing players are still not that vociferous on the issue of removal of subsidies), the developing block often engages itself in infighting on such issues (China moved the WTO against India on toy-related business) and regional trading blocks/economic integration. In fact the recession faced by most developed countries and the decline in exports by developing countries has raised this spectre of protectionism more. Even the WTO chief has opined that ‘‘global commerce was in the danger of an incremental build-up of restrictions that could slowly strangle international trade and undermine worldwide attempts to boost demand and restore growth projected in the world economy in 2010.’’
To what extent the oil prices could give relief is a matter of doubt: the experience of the last couple of years leaves much to be desired, which in turn will be telling upon the growth of passenger transport. In India, already oil marketing companies raised the ATF prices for the second consecutive fortnight on April 1, and naturally the civil aviation sector would be affected. The IMF in its World Economic Outlook released in January 2009 projected a 48.5 per cent decline in international crude oil prices and a 29 per cent fall in non-fuel commodity prices in 2009. For countries like India, this means a fall in realization for its exports of petroleum and non-petroleum products.
An assessment as to the plight can be gauged from the World Bank/IMF findings: global output is projected to contract and advanced economies are to suffer deeper recession in 2009. The world economy is to contract by 0.5 to 1 per cent in 2009 before recovering gradually in 2010. The IMF emphasized that downside risks would continue to dominate.
The WTO in its recent release (March 30, 2009) projected the volume of world trade to decline by as much as nine per cent! Any contraction in world output would invariably lead to a sharp fall in global demand and thus on global trade flows. The WTO has assessed that exports by the developed countries are to fall by as much as 10 per cent while those of developing countries would go down by two-three per cent. There are hard days ahead.
Since we have entered the tunnel, we have to come out of it in one way or the other. This great recession has many roots, and as such there does not and cannot be an overnight solution. A pro-active fiscal policy backed by further monetary easing is the immediate need, among others. There is still room for lower interest rate regime in countries like India and such opportunities should be made full use of. There is simply no short-cut solution to the ongoing crisis, and the mistakes of the developed block cannot be set right by the developing block alone, though global cooperation is a must.
(The writer is a noted management economist) THE SENTINEL
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