Notwithstanding delays in domestic policy reforms, India’s economy is “slowly gaining momentum” and is projected to grow by 7.3 per cent this year, a UN report today forecast.
The World Economic Situation and Prospect report, in its mid-2016 update, said India is expected to achieve a 7.5 per cent GDP growth in 2017 and the economic prospects of the South Asian region will be “contingent” on the growth trajectory of India and Iran.
“India’s economy is slowly gaining momentum, with an expected GDP growth of 7.3 and 7.5 per cent in 2016 and 2017, respectively. Despite some delays in domestic policy reforms and enduring fragilities in the banking system, investment demand is supported by the monetary easing cycle, rising FDI, and government efforts towards infrastructure investments and public-private partnerships,” the report, released here said.
China, which grew at about 6.9 per cent in 2015, will continue to witness slowdown in growth, with its GDP projected to grow 6.4 per cent in 2016 and 6.5 per cent in 2017.
“A larger-than-expected slowdown in China would have widespread spillover effects through trade, financial and commodity markets, while a further deterioration of commodity prices could trigger debt crises in certain commodity-dependent economies,” said the report, produced jointly by the UN Department of Economic and Social Affairs (UNDESA) and the UN Conference on Trade and Development (UNCTAD).
The growth estimates for India in the mid-year update are in line with projections made in January this year, when the 2016 World Economic Situation and Prospect report had said that India will be the world’s fastest growing large economy at 7.3 per cent in 2016, improving further to 7.5 per cent in the following year.
India’s economy, which accounts for over 70 per cent of South Asia’s GDP, had grown by about 7.2 per cent in 2015.
The report added that despite the protracted instabilities and general weakness of the global economy, South Asia’s economic outlook remains favourable, with most countries benefiting from low oil prices.
Regional GDP growth is expected to accelerate from 6.1 per cent in 2015 to 6.6 this year and 6.8 per cent in 2017, owing to robust private consumption, strengthening investment demand and gradual progress on domestic policy reforms.
Inflation in the South Asian region is projected to remain relatively tame, reflecting subdued commodity prices and lower pressures from supply-side bottlenecks. “This has increased monetary policy space, with prospects for further easing in some economies, including India,” it said.
The report however said the favourable outlook for South Asia notwithstanding, economies in the region confront several domestic downside risks, including setbacks in reform agendas and political instabilities. “Structural issues like energy shortages, low participation of women in labour force and infrastructure gaps remain major regional challenges,” it said.
The report further said that regional prospects for South Asia are “contingent on robust growth” in India and the recovery of Iran, where after several years of economic difficulties, the outlook is improving, as the lifting of international sanctions encourages the revival of the oil sector and facilitates trade and financial flows.
It said financial and commodity markets have largely stabilised and recovered from the losses suffered at the start of the year, and capital flows to developing countries have also seen some revival, notably to Brazil, India, the Philippines and Taiwan.
“This incipient increase of capital inflows will be difficult to sustain, as the growth outlook in emerging economies remains bleak, with limited scope for policy support in many countries, while excess capacity and low commodity prices continue to weigh on investment demand,” it added.
Global economic activity overall remains lacklustre, with little prospect for a turnaround in 2016, it said adding that world gross product is expected to expand by just 2.4 per cent in 2016, the same rate as in 2015.
This marks a significant downward revision of 0.5 percentage points to forecasts reported in December, 2015.
Global economic growth prospects for 2017 also remain well below pre-crisis trends, and a protracted period of slow productivity growth and feeble investment weigh on the longer-term potential of the global economy.
The revised forecast reflects significant downward adjustments in the growth rates of many countries in Africa, the Commonwealth of Independent States (CIS), and Latin America and the Caribbean, where tighter policy stances have exacerbated the effects of a series of adverse shocks.
As a whole, economic growth in developing nations in 2016 is unlikely to exceed the 3.8 per cent growth seen in 2015.
The momentum of growth slowed significantly in some large developed economies towards the end of 2015.
In the US, GDP growth is expected to reach just 2.2 per cent in 2016. GDP growth in Japan has exhibited significant volatility in recent quarters, and the economy remains plagued by weak household consumption.
Global GDP growth is forecast to average 0.5 per cent in both years.