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BW Businessworld

Who Will Save The World?

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A couple of days ago, a piece of news almost went unnoticed by world media. Britain's economy slid into its second recession since the financial crisis and its first double dip since the 1970s after official data unexpectedly showed a fall in output in the first three months of 2012 (UK Back Into Recession) .

This comes at a time when the just published International Monetary Fund (IMF) 2012 World Economic Outlook predicted that global economic prospects are gradually strengthening. To be truthful, IMF also mentioned that downside risks remain elevated. And as a result, major advanced economies are likely to resume weak recovery this year.

The red alert area remains the Eurozone which is expected to go into mild recession in 2012; In fact, "downside risks continue to loom large" the report said. The immediate concern is that an escalation of the Eurozone "crisis will trigger a much more generalized flight from risk."

Dawn Of The Asian Decade
So who will save the world? The emerging and developing economies are likely to sustain relatively "solid" activity. The International Monetary Fund said Friday that Asian nations should stand ready to "shift gears" and tighten monetary policy as their economies strengthen and inflationary pressures rise.

On Friday, IMF said Asian economies, led by India and China, are expected to see better growth this year but any escalation of European debt turmoil will impact them.

At the launch in Kuala Lumpur, Malaysia, of the IMF's regular outlook for the Asia Pacific region, the economists said that the region is expected to continue growing at around 6 per cent this year, before rebounding in 2013. (IMF Report)

"Calibrating the right amount of insurance to support stable, non-inflationary growth is the main near-term policy challenge," said Anoop Singh, head of the IMF's Asia and Pacific Department.

The multilateral agency noted that though Asia's growth is expected to "pick up this year after slowing in the last quarter of 2011", Asian policymakers face the challenging task of adjusting policies to support stable, non-inflationary growth.

"An escalation of the crisis with a disorderly, large scale, and aggressive trimming of balance sheets could have a serious impact on Asia," the International Monetary Fund said in its Asia-Pacific Regional Economic Outlook report.

IMF said emerging Asia would remain the fastest growing region in the world, led by China and India, expanding about 8.25 per cent and 6.9 per cent, respectively, this year.

Emphasising that economic rebalancing remains a policy priority for much of Asia, the IMF said the best way for the region to protect itself against external shocks is by strengthening domestic sources of growth.

On the impact of European crisis on Asia, the report noted that a sharp fall in exports to advanced economies and a reversal of foreign capital flows would severely hit the region.

India's Growth Projection Lowered
Cautioning that governance concerns have weakened business sentiment in the country, the IMF on Friday lowered India's growth projection to 6.9 per cent for 2012.  In January, the multilateral agency had pegged Indian economic growth to expand 7 per cent for this year.

Lack of governance and policy paralysis has also subjected India to a outlook rating cut by Standard & Poor's, pulling it down from stable to negative. Another notch down and India will be non-investment grade.

"In India, the lowered growth outlook in 2012 owes much to a slowdown of investment which partly reflects structural factors," IMF said.

IMF called for renewed efforts to revive the "flagging" structural reform agenda.

Apart from some financial reforms and measures to broaden the use of public-private partnerships announced in the 2012-13 budget, the implementation of reforms related to infrastructure is likely to proceed slowly, it noted.

However, the multilateral agency has retained India's growth estimate at 7.3 per cent for 2013. As per the IMF, the national economy grew by 7.1 per cent last year.

End Of The World As We Know It
A Doomsday View by Prof James Petras points out that many of the major institutions and economic relations which were cause and consequence of world and regional capitalist expansion over the past three decades are in the process of disintegration and disarray. All indications point to 2012 being a turning point year of unrelenting economic crisis spreading outward from Europe and the US to Asia and its dependencies in Africa and Latin America. The crisis will be truly global. Inter-imperial confrontations and colonial wars will undermine any efforts to ameliorate this crisis. In response, mass movements will emerge moving over time from protests and rebellions, and hopefully to social revolutions and political power. (Doomsday View)

Petras has an extreme view. The universe has a way of confounding expectations and righting itself. But this time, there are no easy way out of the economic morass that the world has landed itself in. Will new forces and ways of thinking emerge out of this or will 2012 play out the Doomsday scenario in an economic landscape? There are eight more months to find out.