Optimistic outlook

The World Economic Outlook, released by the International Monetary Fund this week, is a mixed bag. 

But it is longer on positives, which are more real than in the past, than on negatives which still remain possibilities. 

 

Predictions on the economy, especially at the global level, are not easy because there are many variables spread across many countries of uneven growth and performance.

 

They also depend on geopolitical situations which are unpredictable. 

The report in fact refers to such fault lines, as perhaps exist in Crimea or in other trouble spots. 

But the overall picture is largely optimistic, with an estimate of 3.6 per cent global growth for 2014  against last year’s 3 per cent. 

That marks a recovery, however tentative, from the past few unremarkable years, mainly because the US economy, the world’s largest, is growing and the Eurozone is holding on to its modest growth.

The report has noted a change of trend in the performance of economies the world over.

While developing countries have contributed more to global growth in the past five years, accounting for three-fourths of it, there seems to be more momentum in the developed world now.

It has scaled down projections for growth in emerging countries from 5.7 per cent of last year to 4.9 per cent for 2014, and for China from 8.2 per cent to 7.5 per cent.

 

The estimates for the Indian economy are better, with the growth rate projected to be 5.4 per cent this year and 6.4 per cent next year. 

This is because the country may be able to take advantage of the strengthening global growth through more exports and there is a possibility of the investment climate looking up.

 

But there are risks and red flags at the global and national levels.

Economies are more interlinked now than ever in the past and underperformance in one region or by  one group of countries can impact prospects in others. 

India’s export growth may not sustain if the rupee keeps strengthening.

 

Inflation is still an elephant in the planning room. US tapering and interest rate hikes can have more negative effects than factored in by governments. 

The ability of India’s next government to formulate and execute growth-friendly policies will be crucial for the future course of the country’s economy. 

While there are indications that the worst may be over, there is much to do by minimising risks and pushing the positives.