Global recovery 2010: Picking the pieces together
A recent update of World Economic Outlook, a regular publication of IMF, estimated that from a negative growth in 2009, the world economy is projected to grow by 3.9% and 4.3% this year and 2011 respectively. The world output increased at the rate of 3.8% in 2008, which decreased by 0.8% registering the worst consequences of recession in 2009. However, the projected economic growth turned positive from a negative record of 2009 as the outcome of wide ranging public intervention that has supported demand and lowered uncertainty and systematic risk in the financial markets. Consequently, the latest global economic growth rate indicates that the global economy is gradually heading towards recovery. The recovery is the outcome of the government interventions. In simple words, the bail out programs that the governments introduced to boost up the demand in their economies helped keep the further possibility of falling into deeper recession at bay. A withdrawal of various measures including bail out programs in the immediate future carries the danger of pushing these countries back into recession.
The ongoing recession has hit hardest the economic activities of the advanced countries. The output of these countries grew at the marginal rate of 0.5% in 2008 while this came down to a negative growth of 3.2% in 2009. It is the lowest record of growth rate compared to the rest of the regions of the world. The projected growth rate of the output of these countries has been optimistic indicating the end of recession, one of the worst phases of business cycle and inclined towards recovery. The projected economic growth rate for the current year and 2011 is 2.1% and 2.4% respectively, which nevertheless is a bright lining.
The emerging and developing economies of the world as well as the economies of developing Asia did not have to undergo the worst impact of recession. Their output grew by 2.1% and 6.5% respectively in 2009, thanks to the government intervention in their respective economies. The government interventions boosted up the domestic demand which prevented the economies from further worsening. The projected growth rate of the emerging and developing economies for the current year and 2011 is 6.0% and 6.3% respectively. In the similar fashion, the output of developing Asia will grow by 8.4% each for the current year and 2011.
Turning to the two Asian giants-China and India, both are in the forefront of recovery. These countries were successful in keeping their economy out of the recession. Amidst the negative growth of the global economy, the output growth of these countries in 2009 was 8.7% and 5.6% respectively. The projected output growth for China for the current year and 2011 is 10.0% and 9.7% respectively while the same for India is 7.7% and 7.8% respectively.
Nepal has also been plagued by liquidity crisis since the Dashain festival indicating that the remittance based economy could fall into a deep crisis. Despite intensive efforts to find a better alternative, and to investigate the pertinent causes responsible for the crisis, the government has published a statement, with a pretension of blaming its own central bank, that the liquidity crisis is the outcome of the central bank’s inability to supply cash to meet the demand. But, according to a recent investigation, over Rs. 8 billion worth of foreign currency have fled to Hong Kong in the last five months. Various business firms sent the foreign currency through different banks in the name of importing wool from China. However, these companies have failed to import wool, as a result the huge capital has frozen in the banks of Hongkong. This could have further added to the woes of the liquidity crisis. However, it is really difficult to arrive at a conclusion for the reason of the crisis in Nepal. It is even difficult to relate the crisis with the world recession. It is needless to say that there are impacts of global recession on the economy, however, it needs a thorough investigation to reach to a conclusion.
Looking at the projected global output growth trend for the current year and 2011, the global economy is heading towards recovery, the projected growth rate between the regions and across the countries is uneven indicating that the recovery will come slowly in the advanced countries than in the developing countries. Some of the countries are seriously plagued by high unemployment rates, rising public debt and, in some countries, weak household balance sheets pose major challenges to recovery. Advanced countries are facing a problem of fiscal imbalances and so are the developing countries. Inflation will not be a threat arising from the fiscal imbalances in the industrialized countries because investor confidence is picking up. The nature of the expected recovery for the current year is fragile. Therefore, there is a need to continue fiscal policies to support economic activities in the near term. It means the government should focus its attention to implement the fiscal stimulus plan for 2010.
Dr. Dhungel is Associate Professor, Central Department of Economics, TU