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Sluggish Economy stares at Fiscal Cliff in 2013 for Support

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India & China to be they key for Global Economy Growth

Two of the major emerging economies namely India and China, will remain to be the key for the growth of global economy for the year 2013. The two Asian economies will be the focus center for the world economy to grow by even a modest three percent in 2013, after the debt turmoil prevailing in the other developed nation including the euro zone. The rising debt has pushed economies to fiscal precipice, resulting in a paralyzed growth in the year 2012. This has left the policymakers in a dilemma for the upcoming year in order to trade off with the development, with debt level leaving them at the crossroads.

Fiscal Cliff, the term coined by the influential US Federal Reserve chief Ben Bernanke is better described as a combination of spending cuts and tax hikes, to help deal with the problem of debt ridden economy. The duo combination seems to be the lingo for the problem-ridden world economy in the New Year.

The 17 nation Euro zone which shares the same currency Euro continued to add to the gloomy situation of the global economy. The debt crisis took roots in Italy and Spain and has nearly paralyzed Greece leading to the all time lowest performance. The US and Europe remained stagnant, despite record low interest rate whereas in India and China the rising inflation and asset risk eroded the minimal growth, they were supposed to contribute to the global economy.

Read more about Fiscal Cliff.

World Economy Revival

Currently with the reforms being implemented by the government of the emerging economies, revival is seen in some economies and developed nations, but the overall outlook for the growth continues to remain weak. Adding fuel to the fire, the IMF recently made a statement on the downside risks which can appreciate globally in times to come. The world economy is likely to grow at 3.3% this year, which is significantly lower than that of the growth recorded in 2012. (Source: IMF)

For many the growth rate of 2-3% is impossible even as in Europe – the epicenter of debt crisis, the economic climate is very dull and the Eurozone has again slipped to recession, after recording negative growth in the two quarters back-to-back. Greece on the other hand, has absorbed hundreds of billions of dollars as bailout package but this only led to the debt crisis being spread like viral infection to other European nations which resulted in the pulling down of the government in few countries.

Effects of US & European Crisis

The jobless rate in European Countries is as high as double digit figure (12%), where as in USA it just slipped below double digit mark still ending at a high rate as compared to historical figures. The 2008 crisis was a result of the excessive risk taking actions which were triggered in the year, whereas currently it is austerity as well as lack of strong united actions among European nations, which is roiling the world economy as Eurozone contracted by 0.1% and 0.2% in the past 6 months.

The growth in the emerging economies like India and China too were dampened, though these economies still managed to report 5+% of growth which helped the world economy to grow to some extent.

Conclusion

In future for the world economy to grow, all eyes are on the new fiscal cliff policy which would cut down the spending and slow the growth of US economy but would make it stable. On the other hand to support the growth, emerging economies are to be banked upon.

We can thus conclude by saying that the expectations from the developing economies of India and China are quite high, which is expected to grow at a rate of over 6% and 8% respectively. This growth if achieved would help the global economy to achieve a modest growth.

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PG

Niraj Satnalika

Niraj is an MBA in International Business (Finance). Prior to this he completed B.Tech in Electronics and Instrumentation. He is currently working with Confederation of Indian Industry (CII), Kolkata in capacity of Consultant. Satnalika is actively involved with an NGO and works towards promoting education among the underprivileged.

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