World Bank: India to grow faster than China in 2010

I was glad to see the World Bank’s latest revisions in its global GDP forecasts on June 22, 2009. Now you must be thinking that I have lost it completely because in that update the World Bank actually revised the global GDP forecasts downward for both 2009 & 10. So why would someone be happy about it? Well, I understand your point. But if you have read my older post on ‘Who will be the next global economic growth leader?’ posted on June 17, 2009, I had written that India will leave China behind in terms of economic growth to become the global growth leader.

Five days later the World Bank comes to support my statement by projecting India to grow faster than China in 2010. According to World Bank India would grow at 8% in 2010, making it the fastest-growing economy in the world. China is projected to grow at 7.7% in the same year. Have a look at the following table.

Let’s talk about the world economy now. Despite the recent signs of improvement in some parts of the world, the prospects for the global economy remain quite uncertain. According to the World Bank’s revised forecasts, the world GDP will contract by 2.9% in 2009 as compared to 1.7% it had forecast just two months and a half ago. To my mind, the global economy will take some time - say four more quarters - to come out of the trauma of recession.

The policy makers will have to be extra careful about all macro indicators and will have to respond to them accordingly. Structural imbalances which have been created over the period need to be tackled now. The US consumers need to learn how to save and the Chinese consumers should learn how to spend. Another major problem for many countries is the mounting fiscal deficit, which is going to take the centre stage once the recovery starts. Inflation, unemployment, protectionism… It will be quite a task for policymakers to tackle these-going-to-be-serious issues. Well, I am also bracing myself for bringing all the actions on the economy front to your notice.

Signs of global economic recovery or just a mirage?

At a time when people around the world were riding high on early signs of economic recovery, the World Bank (WB) brings them back to the ground reality. According to the WB, which has revised its forecasts on global economic growth to -2.9% in 2009, down from -1.7% projected in Mar’09, the recovery is expected to be very gradual. Have a look at the WB's revised GDP forecasts for 2009 and 2010.

One interesting thing you must have noticed about Indian and Chinese economies. Growth forecasts for both the nations have been revised upward. Now, does it say that the decoupling hypothesis was not a complete absurd and it’s just a beginning? May be a couple of decades later this blissful thought becomes a reality.

Well, for me it’s too early to comment on that. Personally, I don’t believe in ‘decoupling’. If you have views on that please share.

Who will be the next global economic growth leader?

“I remember myself being the topper of the class for years in my school days? All thanks to my superb tuition teacher. But one day the teacher got married and left the city. And the guy who used to come number two or three stood first in the class that year. Actually, the guy used to study on his own and was not depending on any tuition unlike me.”

I see the same thing happening to China (me) in coming years. China has enjoyed the status of ‘the fastest growing economy in the world’ for quite some time now. But there is a big question mark on whether it will continue to rule the number one position any longer. Why is that so?

Actually, the global demand has dried up completely on account of global recession. China's exports (tuition teacher) have fallen around 22% in the first five months of 2009, as compared to the same period a year ago. May was the seventh straight month when exports tanked. Given the current economic situation, exports are unlikely to recover any time soon.

But that creates a problem for China. Exports contribute more that 35% to China’s GDP as compared to 14% in case of India. Therefore, this kind of heavy dependence on exports will be the reason for China’s sluggish growth in coming time.

Rest I leave to you to guess who will be the next topper in the world. Yes…You guessed it right.