Global Economic Prospects

The World Bank lowered India’s growth outlook for the current fiscal to 5.7% from 6.1% estimated earlier and also lowered the growth projection for the world economy to 2.2% from 2.4% that it estimated in January this year.
Citing slower-than-expected expansion in China, India and Brazil, and a stubborn contraction in Europe as reasons for the slower growth, the bank said that India’s gross domestic product in factor cost terms is projected to grow 5.7% in the current fiscal (ending March 2014), and then accelerate to 6.5% and 6.7%, respectively, in the subsequent two financial years.
In its latest 'Global Economic Prospects' report, which comes twice a year and had last come in January, the World Bank has predicted developing countries would collectively expand by 5.1%, less than the 5.5% it estimated in January.
This will be on the back of lower growth in China at 7.7% now vis-à-vis the 8.4% projected in January while Brazil’s economic growth has been cut to 2.9% from 3.4% estimated earlier.
Exports and private investment, which slowed sharply in 2012, are projected to strengthen between 2013 and 2015 and boost growth. However, how robust that recovery will be, will depend on the pace of policy and fiscal reforms, and remains subject to significant uncertainty and downside risks, it said, adding that some upside risks to the outlook include a faster-than projected pick up in global demand and a larger than expected decline in commodity prices.
According to the report, India’s greater dependence on foreign investment inflows to finance its significantly larger current account deficit compared to the past has increased its vulnerability to a sudden reversal of investor sentiment.
“Several factors could result in a slowing or reversal of investment inflows -- an unanticipated monetary tightening in some high income countries; resurgence of debt tensions; escalation of geopolitical conflict; and even disenchantment with the pace or nature of domestic reforms,” it said.
The bank, however, feels that the continued progress in implementing reforms that relieve supply-side constraints, such as reducing energy supply bottlenecks, labour market reforms, improving the business climate, and investing in education, health and infrastructure would be the key to growth.