Thursday, March 19, 2015

[OECD interim report] India should be the fastest-growing economy in the world only if…

The Interim economic assessment report released by the OECD yesterday is nothing but a forecast of moderate outlook for the major economies in the world.

In brief, two of the highlights I find interesting are:

  • Indian GDP growth is expected to surpass China in 2015-16. China is slowly getting close to its 7% target; private demand due to real estate weaknesses is slowing down the Chinese economy. The report used the term “fastest-growing” major economy in 2015-16 for India. What India needs to spur or accelerate that growth are structural reforms. See a critique of India’s present touted reforms by Deepak Lal, Professor Emeritus of International Development Studies, UCLA.
  • While monetary policies are the center piece of the recovery, excessive reliance on Central Bank policies should be avoided to mitigate risks. Technological innovation coupled with fiscal policies should serve as synergistic mechanisms to maintain this global recovery.

The report also speaks of lower oil prices as spurring the boom in consumer demand but decries the incessantly abnormal low inflation in the major economies of the world which risk is exacerbated by low or even negative interest rates. This places a burden on fixed investment at the benefit of financial investments.

To cap it all, economies dependent on commodities have a weak growth prospect for 2015. One should not fail to mention - including oil dependent countries like Nigeria.

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