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Cover Story | January 2016

Ups & downs in 2015

Global growth is forecast at 3.5 per cent in 2015 and 3.8 percent in 2016, with uneven prospects across the main countries and regions. Growth in emerging market economies is softening, reflecting an adjustment to diminished medium-term growth expectations and lower revenues from commodity exports, as well as country-specific factors. The outlook for advanced economies is showing signs of improvement, owing to the boost to disposable incomes from lower oil prices, continued support from accommodative monetary policy stances, and more moderate fiscal adjustment.

Growth in the US and Canada remains solid. However, while lower energy prices have boosted growth momentum in the US, they pose downside risks to the Canadian economy owing to the relatively large size of its energy sector. US economy’s growth is projected to reach 3.1 per cent in 2015 and to remain at 3.1 per cent in 2016 (IMFWEO, April 2015). The Canadian economy is expected to grow 2.2 per cent in 2015 helped by a strengthening the US economy. There are signs of a pickup and some positive momentum in the euro area (IMF & World Bank Economic Outlook Reports).

The euro area’s recovery remains uneven across countries. The outlook is for modest growth. Growth is expected to increase to 1.5 per cent in 2015 from 0.9 per cent in 2014. Beyond 2015, euro area growth is expected to hover around 11/2 per cent, reflecting both demand-and-supply side constraints. The medium-term outlook of modest growth and subdued inflation in the euro area is driven largely by crisis legacies, notwithstanding the positive effects of the ECB’s actions. Inflation is forecast to be about 0.1 per cent in 2015 and is expected to remain below the ECB’s medium term price stability objective during the forecast period because of persistent slack. Uncertainty and pessimism regarding the euro area’s resolve to address its economic challenges are likely to dampen confidence, as will national and global political developments (such as recent developments in Greece and in Russia and Ukraine). Despite some progress, deep-seated obstacles to productivity and competitiveness are likely to weigh on the region’s medium-term growth potential.

Recent sharp declines in oil (and to a lesser extent, commodity) prices, although a net positive for the global economy and for oil and commodity importing regions, are weighing on the commodity exporting countries of Latin America and the Caribbean, the Commonwealth of Independent States, the Middle East and North Africa, and sub-Saharan Africa. The diverging trajectories of the major economies like robust growth in the US, the weaker recoveries three major developments that followed the first Monetary Policy Report (MPR) of September 2014, which have dramatically eased cost-push pressures in the Indian economy. External cost conditions associated with imports of commodities, particularly crude and petroleum products, have also contributed significantly.

WPI as a whole had a continuous declining trend from 5.1 per cent in Jan 2014 to 2.36 per cent in May 2015. In fact, overall decline in inflation was observed during Jan 2014-May 2015 in overall textiles in WPI. During the FY2014-15 prices of all commodity, food items, manufactured articles and textile goods have come down significantly.

Fiscal deficit (FD) and current account deficit (CAD) were cause of concern in Indian economy during fiscal year 2012-13 (FY13). Fiscal Deficit was above 5 percent of GDP during FY2013- 14 and also estimated at 5.1 percent for FY2014-15. Exchange rate of Indian Rupee (INR) vis-a-vis major trading currency i.e. USD have shown depreciations in recent times. Indian rupee has depreciated by 1 per cent vis-a-vis USD in 2014-15 compared to previous FY while against euro Indian rupee was strengthened by 4.5 per cent in FY 2014-15. During the period of April-Aug 2015 INR has again depreciated against USD whereas against euro, INR has strengthened ag

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