Reform driven India is a high-flier but world told to fasten seat belts

Global Economic Prospects report of World Bank puts India ahead of China and sees turbulent year

GN Bureau | June 11, 2015


#china   #economy   #global oil prices   #growth rate  

Reforms have buoyed confidence and falling oil prices have reduced vulnerabilities and India’s economy will grow by a robust 7.5 per cent rate in 2015. At this growth rate the country is set to surpass China for the first time.

"With an expected growth of 7.5 per cent this year, India is, for the first time, leading the World Bank's growth chart of major economies," said Kaushik Basu, World Bank Chief Economist and Senior Vice President after the release of the latest Global Economic Prospects (GEP) report.

The reforms process is improving business and investor confidence and attracting new capital inflows, and should help raise growth the report said.

The World Bank also cut its global growth outlook for this year and urged countries to "fasten their seat belts" as they adjust to lower commodity prices and a looming rise in US interest rates. It predicted the world economy would expand 2.8 percent this year, below its 3 percent prediction in January.

China is projected to grow at 7.1 per cent in 2015. Developing countries are now projected to grow by 4.4 per cent in 2015, with a likely rise to 5.2 per cent in 2016, and 5.4 per cent in 2017, the report said.

"China has avoided the potholes skillfully for now and is easing to a growth rate of 7.1 per cent; Brazil, with its corruption scandal making news, has been less lucky, dipping into negative growth," he said.

Growth in South Asia is expected to continue firming to 7.1 per cent in 2015, led by a cyclical recovery in India and supported by a gradual strengthening of demand in high-income countries.

The decline in global oil prices has been a major benefit for the region, driving improvements in fiscal and current accounts, enabling subsidy reforms in some countries, and the easing of monetary policy, the report said.

However, according to the report, developing countries face a series of tough challenges this year, including the looming prospect of higher borrowing costs as they adapt to a new era of low prices for oil and other key commodities, resulting in a fourth consecutive year of disappointing economic growth this year.

"Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment," said World Bank Group President Jim Yong Kim.

It lowered the growth outlook for the United States to 2.7 percent this year, from 3.2 percent in January, and to 2.8 percent next year, from a previous forecast of 3 percent. The US economy slumped at the beginning of 2015 due in large part to bad winter weather, a strong dollar, port disruptions and deep energy sector spending cuts.

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