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Indian economy to grow at slower pace of 6.7 pc in 2012: UN

Press Trust of India
Jun 08, 2012 at 02:20am IST

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United Nations: India's economy will grow at a slower pace of 6.7 per cent in 2012 instead of a previous 7.7 per cent forecast, according to the United Nations, which warned that the euro area debt crisis will remain the biggest threat to world economy this year.

In its World Economic Situation and Prospects mid-year update, the UN said the global economic situation continues to be challenging and global growth will likely remain tepid in 2012 following a marked slowdown in 2011.

The global economy is projected to grow by 2.5 per cent in 2012 and 3.1 per cent in 2013, following a growth of 2.7 per cent in 2011, a slight downward revision from previous forecasts, the report said.

Indian economy to grow at slower pace of 6.7 pc: UN

The global economy is projected to grow by 2.5 per cent in 2012 and 3.1 per cent in 2013.

"An escalation of the euro area debt crisis could result in severe turmoil in financial markets and a sharp rise in global risk aversion, leading to a further weakening of global growth," the UN said in the report.

Most regions of the world would also be expanding at a pace below potential.

Economic growth in South Asia is projected to moderate to 5.6 per cent in 2012, down from 6.1 per cent in 2011 as the region continues to face significant regional and global headwinds.

India s economy is forecast to expand by 6.7 per cent in 2012, after growing by 7.1 per cent in 2011, it said. In January this year, the UN had pegged India's economic growth rate at 7.7 per cent for 2012 and 7.9 per cent in 2013 in its World Economic Situation and Prospects.

Weak demand in developed countries and a slowing Chinese economy are likely to weigh on economic growth in East Asia. Average regional growth is projected to slow from 7.1 per cent in 2011 to 6.5 per cent in 2012. Growth in China is forecast to slow from 9.2 per cent in 2011 to 8.3 per cent in 2012.

The report said even if further deepening and spreading of the euro area crisis is avoided, economic activity in the European Union is expected to stagnate in 2012.

It added that most developed economies are still struggling to overcome the economic woes originating from the 2008-09 global financial crisis.

It listed major weaknesses that continue to conspire against any robust economic recovery. It said de-leveraging by banks, firms and households continues to restrain normal credit flows and high unemployment remains both the cause and effect in preventing economic recovery.

The report estimates that world trade growth will slow further to 4.1 per cent in 2012, down from 13.1 per cent in 2010 and 6.6 per cent in 2011.

Global unemployment too remains above its pre-crisis level in developed countries like the US and is rising rapidly in the euro area.

In the United States, despite recent improvements, the unemployment rate remains high at over 8 per cent while in the euro area, the unemployment rate as a whole increased to a historic high of 10.9 per cent in March 2012.

In many countries in South Asia including in India, large job deficits remained at the end of 2011. Given the subdued outlook of the world economy, the UN report says that global policymakers face enormous challenges.

"Clearly, the efforts at regaining debt sustainability through fiscal austerity are backfiring. More concerted and coherent efforts on several fronts of national and international policy making are needed to break out of the vicious cycle of continued deleveraging, rising unemployment, fiscal austerity and financial sector fragility."

On the fiscal front, the report said current policies in developed economies, especially in Europe, are heading in the wrong direction, driving the economies further into crisis and increasing the risk of a renewed global downturn.

The UN report says it is essential to change course in fiscal policy and shift the focus from short-term consolidation to robust economic growth with medium to long-term fiscal sustainability.

"Premature fiscal austerity should be avoided and, while necessary, fiscal consolidation should focus on medium-term, rather than short-term adjustment," it added.

It further recommends that monetary policies be better coordinated internationally and regulatory reforms of financial sectors be accelerated in order to stem exchange rate and capital flow volatility, which pose risks to the economic prospects of developing countries.

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