| GEO Business|
| Evidence of economic activity slowing down|
| Updated at: 0332 PST, Sunday, December 07, 2008|
LONDON: The global economic outlook has deteriorated sharply over the last two months. In its World Economic Outlook, published in early October, the International Monetary Fund (IMF) forecast global growth of 3.9 per cent in 2008, and of 3.0 per cent in 2009. The IMF has since revised its forecast for global growth downwards to 3.7 per cent for 2008, and 2.2 per cent for 2009.
Many economists are now predicting the worst global recession since the 1970s. Several countries, notably the United States, the UK, the euro area and Japan are all officially in recession. More worryingly, current indications are that the recession will be deeper and the recovery longer than earlier anticipated.
Confidence in global credit markets continues to be low, and credit lines remain clogged. The tight and hesitant conditions in the credit markets are precipitating erosion of demand which, in turn, is feeding a recession - deflation vicious cycle.
Contrary to earlier expectations that emerging economies will be affected only marginally, growth prospects of emerging economies have most definitely been undermined by the ongoing crisis with, of course, considerable variations across countries.
The transmission to emerging economies is taking place via both trade and financial channels. Reflecting the contagion of the crisis, the IMF revised its growth forecast for emerging economies for 2009 to 5.1 percent, down from its early October figure of 6.1 percent.
The outlook for India going forward is mixed. There is evidence of economic activity slowing down. Real GDP growth has moderated in the first half of 2008/09. Industrial activity, particularly in the manufacturing and infrastructure sectors, is decelerating. The services sector too, which has been our prime growth engine for the last five years, is slowing, mainly in construction, transport and communication, trade, hotels and restaurants sub-sectors.
For the first time in seven years, exports have declined in absolute terms in October. Recent data indicate that the demand for bank credit is slackening despite comfortable liquidity. Higher input costs and dampened demand have dented corporate margins while the uncertainty surrounding the crisis has affected business confidence.