World Economic Outlook 2015

The Update of the World Economic Outlook (WEO) released in January 2015 by the IMF puts global growth projection for 2015 at 3.5 percent and at 3.7 percent for 2016.

Global growth will receive a boost from lower oil prices – a result mainly of higher supply – but while the recovery in the United States was stronger than expected, economic performance in all other major economies, particularly Japan, fell short of expectations.

The euro area growth projections are weaker and Japan is in recession. In emerging market and developing economies, growth is projected to remain broadly stable at 4.3 percent in 2015 and to increase to 4.7 percent in 2016.

According to the Update, slower growth in China will have important regional effects, which partly explains the downward revisions to growth in much of emerging Asia.

The growth forecast for India is broadly unchanged, with weaker external demand expected to be offset by the boost to the terms of trade from lower oil prices and a pickup in industrial and investment activity after policy reforms.

The WTO forecasts a world trade growth of 3.1 percent in 2014 and 4.0 percent in 2015. The WTO reports that Asia recorded the fastest export growth of any region in the first half of 2014, with a 4.2 percent rise over the same period last year. It was followed by North America (3.3 percent), Europe (1.2 percent), South and Central America (-0.8 percent), and Other regions (-2.0 percent). North America led all regions on the import side with a growth of 3.0 percent, followed by Asia (2.1 percent), Europe (1.9 percent), Other regions (-0.4 percent) and South America (-3.4 percent).

Presenting a robustly optimistic outlook for India’s growth, the Economic Survey 2014-15 lists the factors that will boost growth, namely, reforms undertaken or planned by the government, declining oil prices and increasing monetary easing facilitated by the moderation in inflation, leading, in turn, to greater household spending and a reduction in the debt burden of firms and finally forecasts of a normal monsoon. At the same time, however, the Survey of 2013-14 had identified certain structural constraints on growth, which include a low manufacturing base and inadequacy of required skills; these also impact India’s export performance.

Despite the global slowdown, India’s merchandise exports increased from USD 83.5 billion in 2004-05 to USD 314.4 billion in 2013-14.

The cumulative value of imports in 2013-14 was USD 450.1 billion as against USD 490.7 billion during the previous year registering a decline of 8.3 percent. Coupled with the moderate growth in exports, this resulted in a decline in India’s trade deficit from USD 190.3 billion in 2012-13 to USD 137 billion in 2013-14, contributing to a lower Current Account Deficit (CAD).

India’s two-way merchandise trade crossed USD 760 billion in 2013-14 or 44.1 percent of the GDP. If services trade is added, India’s trade reached nearly USD 1 trillion. This has been achieved despite the global contraction and is indicative of India’s resilience and increasing integration with the global economy.

According to the WTO, in merchandise trade, India was the 19th largest exporter in the world with a share of 1.7 percent and the 12th largest importer with a share of 2.5 percent in 2013. In commercial services, India was the 6th largest exporter in the world with a share of 3.2 percent and the 9th largest importer with a share of 2.8 percent.

Both external and domestic factors have posed a challenge to export growth such as the global trade slowdown from 2008-09 onwards, exchange rate fluctuations and non-tariff barriers imposed by India’s trading partners and loss of competitiveness in many product areas. The inherent limitations of manufacturing in India, the lack of diversity and focused efforts on services exports, the under achievement of the potential of SEZs, high transaction costs, high cost of trade finance and infrastructural bottlenecks are the domestic challenges to be overcome.

The heavy dependence on imports of essential commodities including crude oil, gas, coal, pulses, edible oils, fertilizers and electronics has kept India’s trade deficit at a high level.

While there has been a gradual shift in India’s exports away from the advanced economies of the European Union and North America, the United States of America continues to be the topmost destination for India’s exports with a share of 12.4 percent in 2013-14 followed by the United Arab Emirates (9.7 percent) and China (4.7 percent) in 2013-14 .The IMF WEO update presents a mixed picture for these key markets for India’s exports.

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