Sluggish global economy stares at fiscal cliff
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Sluggish global economy stares at fiscal cliff

Last Updated: Tuesday, December 25, 2012, 14:15
 
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Sluggish global economy stares at fiscal cliff
New Delhi: India and China will be key for the global economy to grow by even a modest three percent in 2013, after bouts of debt turmoils across continents pushed it to fiscal precipice and an anaemic growth rate in 2012 left policymakers and politicians at crossroads.

Coined by the influential US Federal Reserve chief Ben Bernanke, 'fiscal cliff' -- better described as a combination of spending cuts and tax hikes -- seems to be the lingo for problem-ridden world economy in the New Year.

If emerging markets such as India and China grappled with spiralling inflation and risks of asset bubbles, the US and Europe remained almost stagnant despite record low interest rates in 2012.

Adding to the economic gloom, the 17-nation eurozone, a grouping of nations that share the common currency euro, continued to be bogged down by debt crisis which also took roots in Italy and Spain while suffocating Greece.

Though slow revival is happening in some emerging economies and developed nations, as the International Monetary Fund (IMF) recently said, "the outlook for growth remains weak with appreciable downside risks".

Going by IMF projections, the world economy is likely to expand 3.3 percent this year, way lower than 3.8 percent growth seen in 2012. The other projections call for a growth rate of 2-3 percent for the global economy in the new year.

To start from Europe, the epicentre of debt crisis, the economic situation is jittery and the euro zone has again slipped into recession -- generally referred to as two straight quarters of negative growth.

Hundreds of billions of dollars worth bailout money has been absorbed by ailing Greece but the debt turmoil has only spread to other European nations, even pulling down some governments.

While excessive risk taking ways triggered the 2008 financial collapse in the US, now it is austerity as well as lack of strong united actions among European nations that is roiling the world economy.

For instance, the euro area economy shrunk by 0.1 percent in the 2012 September quarter, following a contraction of 0.2 percent in the previous three months.

Moving away from the sick Europe, emerging markets such as India and China too are reeling under slowdown pangs. However, compared to many of the ailing developed economies, these nations are the remaining bright spots in the dark economic firmament.

However, expectations are high for China to return to eight per cent and India to over six percent growth in 2013, which in turn would help global economy to achieve a modest growth.

As a corollary, jobless rate are as high as nearly 12 percent in some European countries while it is in high single digit in the US.

Political equations are also fast changing even as American President Barack Obama has won a second term. With France anointing a socialist regime, the so-called axis of power with Germany revealed some early cracks.

While France is batting for free spending, Germany is advocating austerity and amid the dissent, overall European growth is the casualty.

Interspersed between the economic instability are hidden battles over currency movements, specifically the low value of Chinese yuan.

Also, loose monetary policies in the advanced economies are sparking volatility in the stock markets of Indian and many other developing markets.

On the other hand, the G-20 grouping whose prominence rose in the aftermath of 2008 financial meltdown does not have much to show for this year. Gatherings and promises of joint action to tackle illicit money flows did not sooth the frayed nerves of investors worldwide.

"Potential growth may disappoint going forward in both advanced and emerging economies, reflecting the legacy of the financial crisis in the former and the unwinding of credit booms in the latter," the IMF has said.

As another year passes by, robust green shots are, however, still a far cry in the global economic landscape.

PTI



First Published: Tuesday, December 25, 2012, 12:42


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