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Growth projections and caveats

The International Monetary Fund's recent positive outlook on the global economy has attracted plenty of attention. The IMF was the first among the global financial institutions to spot the early signs of economic recovery from the crisis. Its periodic forecasts of economic growth, both for the global economy and individual countries, have tended to be upbeat, with every forecast reflecting greater optimism than the earlier one. The world economy is now slated to grow by a healthy 4.6 per cent in 2010. Around this time last year, its growth projection for 2010 was 2.5 per cent and this was successively raised to 3.9 per cent in January, 4.2 per cent in April, and now to 4.6 per cent. However, the growth projections have always come with caveats. Many of them remain to this day. For instance, economic growth continues to be uneven among countries. The larger emerging economies, China and India especially, are leading the recovery, and the advanced economies are trailing. The problem of correcting this looming imbalance remains. It is becoming fairly obvious that the lack of congruence in the objectives of the rich and the developing economies in this crucial area cannot be overcome without a strong political will on the part of all countries.

A major threat to global economic recovery has emerged more recently, with the severe debt crisis in a few European countries now becoming a generalised affliction. A sovereign default by a country such as Greece will have serious negative consequences for the global financial sector, since major European and U.S. banks hold a high proportion of bonds issued by its government. A few advanced economies led by the United Kingdom have felt compelled to go in for a rigorous fiscal consolidation programme. The IMF is extremely positive on India. It expects the Indian economy to grow by 9.4 per cent, up from its April forecast of 8.8 per cent. The most optimistic of official estimates do not place the growth rate above 8.5 per cent, but there are reasons to believe that the Reserve Bank of India and other forecasters will also mark up their figures. Monsoons have so far been satisfactory and the keenly anticipated turnaround in agriculture may happen. Industry, led by manufacturing, has been recording impressive gains. Tax collections have been buoyant, and surveys indicate heightened business confidence. Inflation has, however, become more intractable, while physical infrastructure continues to be totally inadequate in relation to the needs of an economy looking to grow in double digits.

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