The global economic growth rate for 2006 is likely to be at around 4.9 per cent, higher than what was predicted six months ago with most of the increase coming from India, China and Russia. According to an International Monetary Fund (IMF) report, the upward revisions for China, India and Russia account for two-thirds of the increase while prospects for Japan have also improved.
''We expect the US economy to slow in the second half but growth should remain above trend,'' IMF chief economist Raghuram Rajan said, at the release of the World Economic Outlook at the IMF headquarters here yesterday.
The US economy has bounced back from a fourth-quarter slowdown and is set for solid expansion but needs to do much more to get its deficit-ridden finances in shape, the IMF report said.
The most pressing threats to US growth are a property market slowdown, record-high oil prices and the country's mammoth current account deficit, it added.
Mr Rajan said these good economic times could provide governments with an opportunity to implement policy reforms whose goal is to assure future success in an increasingly competitive global economy.
India too is growing rapidly and important steps are being taken to improve the infrastucture. Reform of labour laws are urgently needed if jobs are to be created in labour-intensive sectors, he stated.
''The Prime Minister supported this today,'' he said adding that ''opportunities for higher education also need to be expanded if India is to maintain its competitiveness in skill-intensive sectors.'' Growth in China remains very strong, with investment growth running at a high rate and net exports increasing significantly whereas in India, growth remains rapid, with strong momentum in the manufacturing and services sectors, the IMF report said.
China's growth rate could exceed the IMF's 9.5 per cent forecast for this year and 9 per cent for 2007, Mr Rajan added.
Increased worldwide demand for mobile phones, digital cameras and flat-screen televisions made by companies such as Samsung Electronics Co is spurring expansion in Asian technology exports in China, South Korea and other nations.
India's economy averaged 8 per cent annual growth in the past three years, making it the second-fastest growing major economy after China.
Also an expansion in Japan, the world's second-largest economy, is stoking demand for goods shipped from its Asian neighbours.
Japan's economy, which has suffered three recessions since 1991, expanded at its fastest rate in five years in 2005.
The ongoing domestic demand recovery in Japan is particularly helpful for Asia, the IMF report said.
China’s economy, Mr Rajan said, is expected to grow at a blistering pace of 9.5 percent. The underpinnings of growth need to move from investment in net exports toward consumption.
It is therefore good news that the People’s Congress wants to promote health and education spending, and build social safety nets ''all measures that should increase consumption in the medium term.'' ''As we have consistently argued, such steps will be most effective if supported by financial sector reforms and more exchange rate appreciation,'' Mr Rajan said.
''Unfortunately, far too little is being done in far too many places. Serious policy reform has gone into remission. Instead of facing the implementation deficit squarely, politicians everywhere are aiming at soft targets like the foreigner who supposedly competes unfairly, or the immigrant who works to hard and for too little,'' he added.
Among the policy reforms that the IMF is promoting are the need for America to cuts its budget and trade deficits, for Europe to liberalise its labour practices, and for China to boost domestic consumption and strengthen its financial system.
The IMF said while oil priced at 70 dollars a barrel--a doubling in less than two years--could slow growth, it is unlikely to trigger a recession.
On the issue of global imbalances, Mr Rajan said because of their large surpluses, Asian countries such as China need to revalue their currency. The US, he said, with a huge trade deficit, will eventually see a decline in the value of the dollar.
The US trade deficit requires one billion dollar of external financing every day. Most of this financing comes from dollars held by foreign companies and Asian central banks.
The IMF is optimistic about the world economy, including in the developing world. It says Mexico and Brazil, the biggest economies in Latin America, are growing by more than three per cent while long-depressed sub-Saharan Africa is growing by nearly six per cent.
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