After a long period of uncertain global economic trends, there are some signs that economic activity is stabilizing and rebounding, led by emerging economies. While the IMF expects advanced economies to expand by 2 per cent in 2017 and 2018, the projection for emerging economies is far more robust at 4.5 per cent for the current year and 4.8 per cent the next year.
Within this, there are several speeds, depending on the nature of the emerging economy. The largest in the group, China, has registered 6.7 per cent growth rate for 2016, and has recently set a target of around 6.5 per cent for the coming five years. The other BRICS economies of Brazil, Russia and South Africa are expected to grow by less than 2 per cent in the coming two years as these are dependent to a large extent on commodities. Some of the more populous emerging economies in Asia, including Indonesia, Philippines and Vietnam, are set to achieve strong GDP growth of 5 per cent.
In the advanced economies, the strong showing of the US in employment has led the IMF to estimate a 2.3 per cent growth rate for 2017. The US Fed has started raising interest rates, deploying the instrument twice in the recent past. In the Euro area, growth appears to be firmly back in positive territory with the two large economies of Germany and France set for 1.6 and 1.4 per cent growth rates respectively, while the UK is forecast to recover from loss of confidence after the Brexit vote to register 2 per cent growth.
Further, there are new institutional financing architectures that are boosting regional investment capacity. The Asian Infrastructure Investment Bank and the New Development Bank have instituted lending to new infrastructure projects in emerging economies with a view to accelerating investments and opening new avenues for private industry. Multilateral and bilateral funding mechanisms too are developing projects across regions. For example, India has offered project assistance and lines of credit of $10 billion to Africa, and developmental funds of a similar nature within South Asia.
The emerging economies have been working on economic reforms to varying extent. Success on structural reforms is protracted, with emerging economies struggling to deal with different challenges such as slowdown in global trade, vulnerable fiscal and external conditions, and rising debt. For example, in China, the debt to GDP ratio has increased to 280 per cent of GDP.
Within this scenario, India has emerged as the fastest growing major economy in the world. As per advance estimates for 2016-17, India’s GDP growth was 7.1 per cent, despite the uncertainties in the global market. This is accompanied by improving macroeconomic indicators such as fiscal deficit, current account deficit, and inflation. FDI inflows are robust, and foreign exchange reserves are expanding.
It is evident that a new phase for global growth led by emerging economies is taking shape. This will be driven by populous economies, primarily with India as the chief engine of growth. China will continue to remain a key contributor to global growth as even a 6-6.5% rate of GDP growth for a $12 trillion economy will entail strong addition to output.
In conjunction with India’s demographic shape, rising education and skill development levels, healthy agricultural growth including non-food- grains, and entrepreneurial capacity, the country represents the next wave of global growth.
Source: CII Annual Session 2017 : Theme Paper- Future of Globalisation: Can India Lead?