|Seetharaman: warns of global risks
Speaking on global economic growth in the context of the annual meeting of the World Economic Forum, which concluded in Davos, Switzerland, yesterday, Seetharaman said over the next decade, GDP growth would be divided equally between the developed and developing countries.
Engines of growth include growing middle classes in developing countries, investments in infrastructure and human capital development, and meeting the needs and wants of growing numbers of older people.
There are new opportunities for growth in the developing countries for consumer goods, financial services, construction and defence sectors, he said.
“Developed countries should not see employment and economic growth in developing countries as a zero-sum game. Western companies will also benefit from participation in infrastructure projects in the developing world,” he said.
“The United States’ economic growth will depend on how the global situation unfolds including the European crisis.”
Seetharaman said the global output was projected to expand by only 3.25 % in 2012 compared with 4% in September 2011 based on an IMF outlook.
“This is largely because the euro area economy is now expected to go into a mild recession in 2012 as a result of the rise in sovereign yields, the effects of bank deleveraging on the real economy, and the impact of additional fiscal consolidation,” Seetharaman said.
Major euro countries will have reduced growth with Italy and Spain expected to have negative growth.
Growth in emerging and developing economies is also expected to slow because of the worsening external environment and a weakening of internal demand.
The policy challenge, he said, was to restore confidence and put an end to the crisis in the euro area by supporting growth, while sustaining adjustment, containing deleveraging, and providing more liquidity and monetary accommodation.
In other major advanced economies, the key policy requirements are to address medium-term fiscal imbalances and to repair and reform financial systems, while sustaining the recovery, he said.
In emerging and developing economies, near-term policy should focus on responding to moderating domestic growth and to slowing external demand from advanced economies.
The world is facing a new era of global catastrophes, driven by interdependency, complexity and the velocity of change.
Systemic global risks such as resource scarcity, water security and climate change expose the underlying fragility of existing safeguards.
Existing safeguards against global risks seem inadequate and there is no reliable system of global governance to deal with emergent and systemic risks, Seetharaman said.
On systemic issues reshaping the global financial system, he said the European debt crisis and deleveraging pose serious risks to global financial system.
The impact is already being felt in the real economy, as the United States and other developed countries have cut their expected GDP growth rates for 2012. The developing world will also not be immune, having traditionally relied heavily on European banks for trade financing, Seetharaman said.