Global Economic Prospects Report

Context;

According to the recently released Global Economic Prospects Report by the World Bank, India is predicted to remain the fastest-growing major economy globally, with a projected GDP growth rate of 6.6% for FY25.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

1. Global Findings
2. South Asian Region (SAR) Findings
3. India-Specific Findings
4. Risks to the Global Economy Identified in the Report
5. Policy Challenges in Emerging Markets and Developing Economies (EMDE)

Global Findings:

• Economic Stabilisation: For the first time in three years, the global economy is expected to stabilise in 2024.
• GDP Growth: Global GDP is projected to grow by 2.6% for 2024-25 and is anticipated to increase to 2.7% in FY26 and FY27, driven by modest growth in trade and investment.
• Inflation Moderation: The World Bank forecasts a slower reduction in global inflation, with an average of 3.5% this year.
• Monetary Policy: Central banks in advanced and emerging markets are likely to be cautious about easing monetary policies due to ongoing inflationary pressures.
• Subdued Outlook: Despite some near-term improvements, the global outlook remains subdued due to geopolitical tensions, trade fragmentation, higher interest rates, and climate-related disasters.
• Global Cooperation: Emphasis is placed on the need for international cooperation to safeguard trade, support green and digital transitions, provide debt relief, and enhance food security.

South Asian Region (SAR) Findings:

• GDP Growth: In South Asia, GDP growth is projected to decrease from 6.6% in 2023 to 6.2% in 2024, primarily due to a slowdown in India’s high growth rates in recent years.
• Regional Economies: Bangladesh is expected to maintain robust growth at a slower pace, while Pakistan and Sri Lanka are anticipated to see strengthened economic activities.
• Per Capita Income: Per capita income growth in South Asia is expected to decline from 5.6% in 2023 to 5.1% in 2024-25, before slightly rising to 5.2% in 2026. This slower pace is attributed to weaker-than-expected growth in private consumption and fiscal adjustments that may reduce household income.

India-Specific Findings:

• Regional Growth Contribution: India, as the largest economy in South Asia, has significantly contributed to the region’s growth.
• Growth Rate: India’s growth rate for FY24 is estimated at 8.2%, driven by its industrial and services sectors, which have offset a slowdown in agricultural production caused by monsoon disruptions.
• Fiscal Deficit: The fiscal deficit relative to GDP in India is projected to decrease due to increased revenues from a broadened tax base.
• Trade Deficits: Narrowing trade deficits, particularly in India, contribute to overall economic stability in the South Asian region.

Risks to the Global Economy Identified in the Report:

• Armed Conflicts and Tensions: An increase in armed conflicts and heightened international tensions can lead to loss of life, infrastructure destruction, and economic instability. Conflicts in the Middle East may also disrupt oil supplies, driving up prices.
• Economic Isolation: Countries becoming economically isolated by imposing trade barriers such as tariffs and quotas can further strain global trade.
• US-China Trade War: The trade war between the US and China has disrupted supply chains, leading to higher consumer prices in both countries.
• High Inflation: Persistent high inflation reduces consumer purchasing power and discourages spending. Although higher interest rates are necessary to control inflation, they can slow economic growth and lead to job losses.
• Investment Uncertainty: When investors are uncertain about the future economic outlook, they are less willing to take risks, which can result in a decline in investments and increased stock market volatility.
• China’s Economic Slowdown: As the world’s second-largest economy, a slowdown in China can have significant global repercussions. This could stem from a real estate market crisis or internal political instability. A sharp slowdown in China reduces demand for raw materials and other goods exported by other countries, leading to job losses and economic hardships in those countries.
• Climate Change: The increasing frequency and intensity of natural disasters such as floods, droughts, and hurricanes disrupt agricultural production, cause widespread damage to infrastructure and homes, and lead to food shortages and price hikes. Rebuilding after such disasters strains government finances.

Policy Challenges in Emerging Markets and Developing Economies (EMDE):

• High Debt Burdens: Many EMDEs struggle with high debt burdens, weak growth prospects, and downside risks.
• Need for International Cooperation: Addressing debt crises and preventing economic instability require international cooperation. The G20 Common Framework for debt restructuring is viewed as inadequate and needs improvement.
• Climate Commitments: Current global climate commitments fall short of achieving net-zero emissions by 2050. EMDEs need to invest 1-10% of GDP annually to meet low-carbon development goals.
• Mobilising Resources for Climate Action: Public resources mobilisation, carbon pricing, and attracting private investment are crucial for effective climate action.
• Internet Access: About one-third of the global population lacks internet access, particularly in EMDEs.
• Catalysing Private Investment: Governments can facilitate private investment in digital infrastructure.
• Trade Fragmentation: Rising geopolitical tensions and protectionist measures fragment trade, harming EMDEs.
• Restoring Multilateral Trade: Restoring the rules-based multilateral trade system and expanding trade agreements are essential for economic stability.

-Source: The Hindu