By Manali Joshi
Launched on December 11, the World Economic Situations and Prospects (WESP) Report 2018, is a joint product of the United Nations Department of Economic and Social Affairs (UN/DESA), the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions. It seeks to analyse and discover the growth of the global economy after the subsided global crisis. It was observed that in 2017, global economic growth had reached 3 percent—the highest growth rate since 2011—and growth is expected to remain steady for the coming year. The improvement is widespread, with roughly two-thirds of countries worldwide experiencing a stronger growth in 2017 than in the previous year. Global growth is expected to remain steady at three percent in 2018 and 2019.
The report said that as the global economy is improving, it provides for the countries to concentrate on long-term issues like low-carbon economic growth, reduction of inequalities, economic diversification, and elimination of deep-rooted barriers that hinder development. The report discusses the economic conditions of most of the countries according to the continents they belong to.
Growth prospects in South Asia
The economic outlook for South Asia, according to the report, remains steady and favourable, driven by robust private consumption and sound macroeconomic policies. It has been observed that there is going to be a gradual progress in labour market indicators and a reduction in poverty rates. Monetary policy stances are moderately accommodative, while fiscal policies maintain a strong emphasis on infrastructure investment. Regional GDP growth is expected to strengthen to 6.5 percent in 2018 and 7.0 percent in 2019, after posting an estimated 6.3 percent in 2017. Regional inflation is expected to remain stable and at relatively low levels.
Narrowing down to India, the report says that, despite a slowdown observed in early 2017, the growth rate remains positive, underpinned by strong private consumption, robust public investments and structural reforms. Consumer price inflation hit a multi-year record low of 4.9 percent in 2017. GDP growth was 6.7 percent in 2017. However, it is projected to accelerate to 7.2 percent in 2018 and 7.4 percent in 2019. Moreover, the study has revealed that increased private investments can give a boost to the present scenario.
Findings and analysis
India is implementing tax reforms to strengthen their tax revenues in order to keep its fiscal policies in a moderately tight stance. However, as in previous years, the actual fiscal stances are expected to be more expansionary in most economies, especially in relation to key social areas and public investments. To gear up for such a change, the report analysed that further efforts are needed for improving the capacity to implement counter-cyclical policies across the region.
Important subsidisation in the agriculture sector persists in the EU and the United States, China and India. The report revealed that these economies have shifted most of their support to the green box from of trade-distorting subsidies, which is meant to affect the trade minimally and to ensure sustainable agricultural development. However, India needs to beware, given the scale of the support, there are de facto major trade-distorting effects.
Lastly, in 2017, many countries, such as the Islamic Republic of Iran and Nepal, eased their monetary conditions. In India too, the key policy rate was cut by an additional 25 basis points in August. This was done to encourage lending to small and medium-sized enterprises for more industrial productivity. However, it was observed that the credit growth still remained moderately subdued across the region, particularly so in industrial sectors. In response, the Indian government has implemented a range of policy measures to address the relatively elevated levels of non-performing loans. For instance, it has announced a large recapitalisation plan for state-owned banks and implementation of new insolvency proceedings.
The report revealed that despite the above steps, there exists some degree of uncertainty over the monetary policy stance in India. Subdued inflation, coupled with a good monsoon season, offers scope for additional monetary easing. However, if inflation accelerates faster than anticipated, the loosening cycle could end abruptly.
Risks and policy challenges
The report, despite appreciating the incredible economic growth performance Southuth Asian countries, has also enlisted the next steps to be taken by the countries to ensure a sustainable growth through certain policy changes. This is because the global economy continues to face risks, including changes in trade policy, a sudden deterioration in global financial conditions and rising geopolitical tensions. The report has highlighted four areas where the improved macroeconomic situation opens the way for policy to address these challenges: Increasing economic diversification, reducing inequality, supporting long-term investment and tackling institutional deficiencies.
The report notes that reorienting policy to address these challenges can generate stronger investment and productivity, higher job creation and more sustainable medium-term economic growth. Further, for the promotion of sustainable, medium-term economic growth, the report has laid down the key steps to address several structural constraints which could be the real barriers affecting the projected growth trajectory. The first step is to strengthen the fiscal accounts, as it constitutes a key challenge in most economies. Secondly, the region needs to tackle large infrastructure gaps in areas such as energy, telecommunications, sanitation and water access, as well as transport and connectivity. Promoting private investment in infrastructure projects should be a key policy priority through a range of measures, including public investments that include private investments, better implementation capacities in public sector, regulatory changes and structural reforms.
Featured Image Source: Pixabay
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