Unctad forecasts gloomy 2009, pegs India’s growth at 5%

Unctad forecasts gloomy 2009, pegs India’s growth at 5%
The Financial Express, September 8, 2009, Page 1

fe Bureaus, New Delhi

Warning of a gloomy global economic outlook, United Nations Conference on Trade & Development (Unctad) on Friday projected that the Indian economy would expand 5% in 2009, lower than the 5.4% growth forecast by the International Monetary Fund in the same period and the near 6% expected by domestic banking regulator RBI in fiscal 2009-10.

According to the UN agency, India’s growth in 2009 will be lower than the 7.3% seen in the previous year, but is next only to China, which is likely to expand by 7.8%. Unctad believes global output in 2009 will dip by more than 2.5%, against a 2% increase last year. This outlook is worse than the 1.4% contraction projected by IMF and 1.7% dip forecast by the World Bank for 2009.

India’s GDP grew 6.1% in the three months ended July, while in the fiscal ended March, it expanded 6.7% in the backdrop of the global economic crisis. “We are globally integrated in a way that was not seen before. This is mainly because of financial and trade integration seen globally,” said Jayati Ghosh of the Centre for Economic Studies & Planning, Jawaharlal Nehru University.

The report further reiterated that this year, global trade would shrink by 11% in real terms and by over 20% in current terms. The World Trade Organisation had forecast a 9% dip in global trade in 2009. The report attributes contraction in global output to a series of factors, including declining incomes, dipping exports and private non-resident investments in the US, European Union and Japan, among others.

The Unctad report also dwelled upon issues related to climate change. It calls for an industrial policy synchronised with enhanced R&D initiatives, an easier patent access regime and FDI policies that promote seamless integration into global supply chains.

According to the international agency, putting a price on emissions through taxes or tradable emission permits could incentivise setting up low-carbon economies. Maintaining that the cost involved in mitigation measures could be misleading, Unctad stressed that corrective measures to undo climate change damages have a potential to be growth stimulators.

Unctad also warned that the prospects of an economic recovery remained uncertain until mid 2009. It maintained that the recent recovery in financial indicators like lower interest rate spreads on new corporate debt and bonds, and increased stock and commodity prices may not be signs of green shoots, as interpreted by many observers.

According to Unctad, the correction in the price of financial assets and commodities globally is more of a correction and is not backed by strong fundamentals.

“There are strong indications that recent improvements in financial markets are largely due to a recovery of risk appetite by financial agents, but this could be reversed at short notice depending on speculators’ mood or possible changes in the macro-economic policy changes,” the report states. Unctad believes that the global GDP contraction could recede by 2010, but that would be dependent on the effectiveness of fiscal and monetary expansionary policies of the big economies.