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India to grow at 7.3% for next 2 years despite global slowdown: Moody’s

India to grow at 7.3% for next 2 years despite global slowdown: Moody’s

Moody'sNew Delhi : Even as the global economy will further weaken in 2019 and 2020, India’s economy will grow at 7.3 per cent in both the calendar years as it is less exposed to the global slowdown, Moody’s said.

“We expect India’s economy to grow around 7.3 per cent in both the years,” the US-based rating agency said in its quarterly Global Macro Outlook for 2019 and 2020. Its outlooks are based on the calendar year (January-December).

Suggesting downside risks to global growth and slowing of the monetary policy normalization in 2019, it said: “The global economy weakened significantly in the fourth quarter of 2018 and will continue to weaken throughout 2019 and into 2020.”

However, it said India and Indonesia are poised to grow at a relatively stable pace, though below their respective potential.

“While not immune, India and Indonesia are less exposed to a slowdown in global manufacturing trade growth than other major Asian economies and emerging markets,” it said.

Moody’s said the government spending announced ahead of elections this year will support near-term growth in India by increasing consumption. Also, the Reserve Bank of India (RBI) is likely to maintain its current monetary policy stance after some tightening last year.

In the Interim Budget in February, the government had announced a special relief package for the distressed farmers and tax breaks for middle-class earners through tax rebates and an increased standard deduction.

“Together, the direct cash transfer programme for farmers and the middle-class tax relief measures will contribute a fiscal stimulus of about 0.45 per cent of GDP,” it said, adding that the Indian household spending growth will remain stable.

The RBI cut its benchmark policy rate in February and changed the policy stance to “neutral” from “calibrated tightening” after witnessing falling inflation since mid-2018. It fell to 2.04 per cent in January, largely because of declining food prices.

Moody’s said the overall strength of the banking system, which got capital infusion from the government in February, is improving but it remains a constraint on the economy.

These measures, combined with the application of the Prompt Corrective Action framework, which requires timely recognition of bad loans and their resolution through the Insolvency and Bankruptcy Code, are helping to address solvency and asset quality challenges.

According to the RBI, non-performing assets declined to 10.8 per cent in September 2018 from a peak of 11.5 per cent in March 2018. The central bank expects this ratio to improve further to 10.3 per cent in March 2019.

“In fact, with range-bound oil prices, export growth has outpaced import growth for the last two years. Fiscal spending on infrastructure and the rural economy should continue to support domestic activity,” Moody’s said.

—IANS

World leaders discuss future of global economy at Dubai summit

World leaders discuss future of global economy at Dubai summit

World Government Summit in DubaiDubai : The World Government Summit in Dubai, attended by more than 4,000 delegates from 140 countries representing the business, cultural and political sectors, featured speeches and discussions on peace, development and the present and future of the global economy.

The conference, organised annually by the government of the United Arab Emirates, included key international figures such as International Monetary Fund (IMF) Managing Director Christine Lagarde, several heads of states and assorted Nobel Prize winners, Efe news reported on Monday.

In the inaugural address of the conclave on Sunday, Lagarde warned the world economy is growing more slowly than anticipated because of various factors.

Key factors, Lagarde said, are trade tensions, tax hikes, financial restrictions, the uncertainty over Brexit and the deceleration of the Chinese economy.

In her speech, the IMF director laid out her vision of the future of the world economy, which – she emphasized – finds itself at a moment of “transformation.”

Lagarde said that many jobs will change “radically” as a consequence of globalization and new technologies, noting that many jobs will be adapted to “artificial intelligence.”

She also took advantage of her time at the speaker’s podium to issue a call to all countries to fight against corruption, emphasizing that it creates a lack of confidence and puts the brakes on economic growth.

Less convinced about the positive effects of technology on the organization of labour was Nobel Prizewinner in Economics Paul Krugman.

The US economist emphasized that technology has changed a great deal in the past 25 years, but that has not meant much shift in the way people work, and so – in his judgment – the tech revolution has not been a truly “revolutionary” kind of change and the expected shifts in the workplace have not been as great as had been anticipated.

Pope Francis, who just wrapped up a trip to the UAE, also participated in the summit via a video message sent to the forum attendees reminding them that “one cannot speak of sustainable development without solidarity.”

Via a video, the pontiff asked the attendees – in taking up “basic issues” like the challenges of politics and economic development – not to simply ask themselves what the best opportunities are to take advantage of, but rather “what kind of world we want to build together.”

“We could also say that the good, if it is not common, is not true good. Perhaps now more than ever thinking and acting requires real dialogue with others, because without others there’s no future for me,” he said.

Peace and conflict were also among the issues discussed at the forum.

Former Colombian President Juan Manuel Santos, in his remarks in a panel on the issue, discussed the peace process that he led in his country emphasizing that the Revolutionary Armed Forces of Colombia guerrillas had to be treated as “adversaries, not as enemies.”

“The most important thing is to convince the other party, especially the commanders, that for them personally it’s better to negotiate peace than to remain at war,” he said.

Some heads of government took advantage of the forum to call attention to their countries, with Pakistani Prime Minister Imran Khan appealing to foreign investors to back his country at a time when his government has undertaken a series of reforms that he admitted have been “painful.”

It is time for investors to come to Pakistan, Khan told the audience, which included many multinational business leaders.

At the plenary session, Lebanese Prime Minister Saad Hariri talked about incorporating women into the labor forces and positions of responsibility in his country.

Hariri said that not involving women and not training them to work in all sectors represents a “great loss” for a country’s GDP.

Also speaking on Sunday at the forum were Estonian Prime Minister Juri Ratas and French Economy Minister Bruno Le Maire.

The conference, which has been held in Dubai each year since 2012, is scheduled to wrap up on Tuesday.

—IANS

US tariffs starting to have effect on global economy: Lagarde

US tariffs starting to have effect on global economy: Lagarde

Christine Lagarde

Christine Lagarde

Washington : International Monetary Fund (IMF) chief Christine Lagarde, has said the current situation of protectionist policies unleashed by the US has begun to have an effect on the global economy, slowing its growth, according to IMF forecasts.

“A key issue is that rhetoric is morphing into a new reality of actual trade barriers. This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise,” Lagarde said on Monday in a speech at IMF headquarters in Washington, Efe news reported.

In addition, she warned that if current trade disputes escalate “further, they could deliver a shock to a broader range of emerging and developing economies.”

The IMF in July projected world economic growth of 3.9 per cent for 2018 and 2019, although Lagarde said that the next forecast — to be announced in Bali, Indonesia, during the October 8-14 annual IMG and World Bank assembly — would be “less bright”.

However, the IMF Managing Director emphasised that global economic growth remains “at its highest level since 2011,” when the nations of the world began recovering from the economic crisis, and she hailed the fact that the unemployment figures are falling “in most countries”.

Despite this growth context, Lagarde warned that the world’s main economy, the US, in the future could suffer adverse effects from the tax reform approved last December by President Donald Trump.

“For now, the US is growing strongly, supported by a procyclical fiscal expansion and still easy financial conditions – which can become a risk in a maturing business cycle,” she said.

The IMF chief said that in other advanced economies, including those in the Euro Zone and, to a lesser degree, Japan, “there are signs of slowing”.

Lagarde also reviewed the challenges facing emerging markets and low-income nations, including Latin America, the Middle East and Sub-Saharan Africa.

Many of these economies are “facing pressures from a stronger US dollar and a tightening of financial market conditions. Some of them are now facing capital outflows,” she said.

To try and deal with this unstable situation, Lagarde said that the rules of the global trade system must be strengthened via the prevention of abuses by countries in dominant positions and by improving the implementation of intellectual property rights.

—IANS

In an era of productivity slowdown, India has entered AI arena at perfect time

In an era of productivity slowdown, India has entered AI arena at perfect time

roboticsBy Amit Kapoor,

The current global economy is caught in a major paradox. We live in a world where systems using artificial intelligence (AI), robotics and automation are matching or exceeding human performance in more and more domains. Yet, global productivity levels have been stagnant since the economic crisis of 2008.

The global total factor productivity (TFP), which measures the efficiency with which inputs such as labour and capital are used, grew at 1.2 percent per year on an average between 1999 and 2008, slowed to 0.3 percent till 2012, and has stagnated since then.

For the advanced economies, including the US, Japan and the Eurozone, TFP growth has either stagnated or fallen into negative territory while the developing countries have shown a mixed performance. India and China have experienced a TFP growth of 1 per cent and 0.8 per cent, respectively, while Brazil and Mexico have witnessed a fall of 0.4 per cent and 0.9 per cent, respectively.

These trends are more problematic for the developing world than the advanced nations. After all, rising productivity, or output per worker, directly determines the improvements in the standard of living of a nation’s citizens. And, in absolute terms, the TFP levels of advanced nations are almost five times higher than the emerging economies. So, low growth or stagnation of TFP can grossly undermine the ability of poorer nations to catch-up with their richer counterparts.

As economist-columnist Paul Krugman aptly commented: “Productivity isn’t everything, but in the long run it is almost everything.”

However, it is almost inexplicable to experience such productivity trends in the face of rapid technological advancements. British economic journalist Martin Wolff recently suggested that the stagnation of productivity in the developed world could probably be a lull before the storm.

A similar productivity pause was seen in the US in the 1920s when electricity was revolutionising lives. Soon after the lull, productivity levels shot up rapidly. If that is the case, the emerging economies have all the more reason to be concerned about rising cross-country disparities. A sudden acceleration in productivity growth of advanced nations, as suggested by Wolff, will make it even more difficult for poorer nations to catch up; it will also introduce extreme levels of cross-country inequality.

One of the reasons for the low productivity growth levels of developing nations was suggested by Diego Comin and Marti Ferrer of Dartmouth University in a 2013 paper. In a cross-country analysis, they showed that even though these nations have been quick to adopt technologies from the industrialised nations, their penetration rates have been low. This has sustained the gap in productivity levels of the Western and non-Western world.

To make matters worse, the various channels of technology adoption are under threat these days. There are three broad channels for knowledge and technology flows between advanced and emerging economies: International trade, foreign direct investment and cross-country research collaborations. Firms regularly gain access to technology through the process of reverse engineering after importing goods from abroad. Investing in other countries also results in a transfer of technology. Finally, location of research centres abroad to take advantage of cost differences can lead to knowledge flows between countries.

However, in a post-Trump world, as countries close up their economies, these synergies can come to nought. In such a scenario, the adoption of technologies could take a hit and the productivity disparities between advanced and emerging economies. It is crucial that the rate of productivity growth in developing nations rebound as broad-based increases in standards of living are at stake.

The best way for these nations to climb up the ladder of prosperity would be to eliminate all structural impediments to the adoption and penetration of newer technologies. The popular fear of job losses due to higher automation has also been negated by a recent analysis by the Asian Development Bank. In an analysis of 12 developing Asian economies between 2005 and 2015, it was found that a rise in demand more than compensated for the job losses that resulted from automation. In particular, it was estimated that during this period, about 134 million new jobs were created as opposed to a loss of 101 million jobs to technology. So, contrary to expectations, the adoption of newer technologies has induced higher productivity and economic growth in Asian economies.

In the light of these facts, the NITI Aayog’s latest move to shift the policy focus on AI to stimulate social and inclusive growth is a positive step. Such applications of digital technology can unleash higher levels of productivity gains and push the envelope on the delivery of public goods on a national scale. The real litmus test will be the execution of the policy, but for now it can be said that India has entered the AI playground at the perfect time.

(Amit Kapoor is chair, Institute for Competitiveness. The views expressed are personal. He can be contacted at amit.kapoor@competitiveness.in and tweets @kautiliya. Chirag Yadav, senior researcher, Institute for Competitiveness, has contributed to the article)

—IANS

G20 financial leaders see downside risks to global economy from trade disputes

G20 financial leaders see downside risks to global economy from trade disputes

G20Washington : Financial leaders from the Group of 20 (G20) have expressed concerns that trade disputes among major economies could pose downside risks to the global economy, Argentine Treasury Minister Nicolas Dujovne has said.

“Concerns on trade disputes occupied some part of the discussions that we had yesterday, and, of course, it is still one of the three main concerns in terms of the downside risks for the economy,” Dujovne told reporters in Washington on Friday after wrapping up a two-day meeting of G20 finance ministers and central bank governors under Argentina’s presidency, Xinhua reported.

“We discussed trade and the potential impacts on the global economy and the potential disruption that modifications on the trade scheme can actually pose to the global economy,” he said.

While some differences over trade appeared in the last few months, Dujovne said G20 members “still have a very big consensus on the benefits of trade for growth.”

“The idea that the gains from trade have to be evenly shared is a concern that was placed both by advanced economies and emerging economies,” echoed Argentine central bank governor Federico Sturzenegger, noting “there was general appeal for multilateralism”.

However, the G20 meeting didn’t discuss specific trade measures, which are appropriate for the World Trade Organization (WTO) to deal with, according to Dujovne.

Chinese Vice Finance Minister Zhu Guangyao said at the meeting that current global recovery is facing “substantial challenges from a strong wave of anti-globalization and unilateralism.”

He urged G20 members to “firmly support the multilateral trading system” and strengthen macroeconomic policy coordination so as to lay a solid foundation for sustainable global growth, according to a statement posted on the website of China’s Ministry of Finance.

The G20 meeting comes after the Trump administration recently announced additional tariffs on imported steel and aluminium and threatened to impose broad tariffs against Chinese imports.

These unilateral protectionist measures have sparked widespread criticism and provoked threats of retaliation from major trading partners, raising the prospect of escalating global trade conflicts that threaten global recovery.

—IANS