For the last 3 years the world economy is facing crisis. It started with the housing loan crisis in USA and spread all over the world. All the rich countries--USA, and European countries like England, France, Italy, Spain, Portugal, Greece, Germany etc faced it. Even the developing countries like India and China etc were not spared. The growth rate decreased in these two countries. Since China is depending on exports to America, the crisis in America reduced its exports and effected its domestic economy. Even though India is not so much linked with the world economy, since it is depending on imports for oil requirements and other strategic raw materials, the dollar prices of oil and raw materials increased steeply and it resulted in problems to the Indian economy. The GDP growth rate is decreasing rapidly in India. In India, 9% development is normal situation and if it slows down to 6% it will create crisis. It will result in severe decrease in investment and jobs. At present, the growth rate came down to 6.9%.
By the starting of this year 2012, the assessment is that the USA some how will reach a stage where further deterioration in the economy will be halted, but there is a possibility of another crisis in Europe. Some doubt whether China is having the capacity to come out of the problem of slowing down of its economy. If the crisis in Europe is not so serious and if China is not facing any serious problem, then the growth of the world economy in 2012 will be 2.7%. It is to be noted that the growth rate of world economy was 4.2% in 2010 and 3% in 2011. But in case the crisis in Europe is severe and in case China faces more problems, then the world growth rate will be severely reduced and will face another crisis. This is the assessment of the consultant IHS Global Insight.
The assessment of some others are more disappointing. As per the Chief Economist of IMF Mr Oliver Blanchard, the growth will freeze in the world in 2012 and the situation will be much worse than the situation in 2008 when the world economy faced a crisis. He suggested reduction of fiscal deficit as a solution. This means the subsidies, concessions given to the working class and common people have to be reduced or withdrawn and the private corporates are to be given more and more concessions. But these steps will lead to further deterioration since the purchasing capacity of the people and the consequent demand in the market will be further reduced. It is to be noted that in the European countries the economic situation has become more worse due to such austerity measures imposed on the people.
But irrespective of the slight increase or no increase or deterioration in the growth rates, the employment level is much below than what was there in 2008 before the crisis. In USA as well as in Europe, the production and employment are below the 2008 level. On the other hand, the growth rate of China and India which are expected to help the world to come out of the recession, is falling down. The exports of China to Europe fell down due to the recession in Europe. When the manufacture in China is reduced, the exports of raw materials to China by other Asian countries decreased, effeecting their economies.
Another problem is being faced by the developing countries due to the globalisation of finance. The investors of America and Europe who want to compensate their losses in America and Europe by selling their shares in the developing countries, are withdrawing their capital in the developing countries like India. It is resulting in the falling down of the value of the currencies of the developing countries. This is the reason for the falling down of the value of our rupee. This resulted in increase in the cost of the oil imported by our country. When the value of the currency falls down, the exports from that country will be cheap and hence will increase. But this benefit is not available now since the economies of the countries to which these exports have to go are themselves in recession. Therefore in our country we are facing a situation where the value of the rupee is falling down, the cost of oil is increasing, the exports are not increasing and the economy is losing balance.
In the coming days, the Governments' debt crisis will increase further in America, Europe and Japan. Especially in Europe, the problem is serious. This already resulted in imposition of severe austerity measures on the people in the most indebted countries in Europe--Greece, ireland, Portugal eetc. But the problem reached to such a situation where the pressure is increasing for imposing similar austerity measures in the larger economies of Europe-Italy, France and Spain.
The developments in middle-east (Arab countries) are impacting the oil prices. The aggression on Libya by America resulted in increase of the price of raw oil by 25 dollars per barrel. Now America is preparing to attack Iran. If it happens, the oil prices will increase further.
The world economic situation and the consequent economic situation in India in 2012 will thus be more bad when compared to the already bad situation that prevailed in 2011.
((Based on the article by Gudipudi Vijayarao, published in Prajasakti, Telugu Daily dated 5-1-2012)
(What is the impact of this situation and how to come out of it--this will be discussed in the next blog entry)
By the starting of this year 2012, the assessment is that the USA some how will reach a stage where further deterioration in the economy will be halted, but there is a possibility of another crisis in Europe. Some doubt whether China is having the capacity to come out of the problem of slowing down of its economy. If the crisis in Europe is not so serious and if China is not facing any serious problem, then the growth of the world economy in 2012 will be 2.7%. It is to be noted that the growth rate of world economy was 4.2% in 2010 and 3% in 2011. But in case the crisis in Europe is severe and in case China faces more problems, then the world growth rate will be severely reduced and will face another crisis. This is the assessment of the consultant IHS Global Insight.
The assessment of some others are more disappointing. As per the Chief Economist of IMF Mr Oliver Blanchard, the growth will freeze in the world in 2012 and the situation will be much worse than the situation in 2008 when the world economy faced a crisis. He suggested reduction of fiscal deficit as a solution. This means the subsidies, concessions given to the working class and common people have to be reduced or withdrawn and the private corporates are to be given more and more concessions. But these steps will lead to further deterioration since the purchasing capacity of the people and the consequent demand in the market will be further reduced. It is to be noted that in the European countries the economic situation has become more worse due to such austerity measures imposed on the people.
But irrespective of the slight increase or no increase or deterioration in the growth rates, the employment level is much below than what was there in 2008 before the crisis. In USA as well as in Europe, the production and employment are below the 2008 level. On the other hand, the growth rate of China and India which are expected to help the world to come out of the recession, is falling down. The exports of China to Europe fell down due to the recession in Europe. When the manufacture in China is reduced, the exports of raw materials to China by other Asian countries decreased, effeecting their economies.
Another problem is being faced by the developing countries due to the globalisation of finance. The investors of America and Europe who want to compensate their losses in America and Europe by selling their shares in the developing countries, are withdrawing their capital in the developing countries like India. It is resulting in the falling down of the value of the currencies of the developing countries. This is the reason for the falling down of the value of our rupee. This resulted in increase in the cost of the oil imported by our country. When the value of the currency falls down, the exports from that country will be cheap and hence will increase. But this benefit is not available now since the economies of the countries to which these exports have to go are themselves in recession. Therefore in our country we are facing a situation where the value of the rupee is falling down, the cost of oil is increasing, the exports are not increasing and the economy is losing balance.
In the coming days, the Governments' debt crisis will increase further in America, Europe and Japan. Especially in Europe, the problem is serious. This already resulted in imposition of severe austerity measures on the people in the most indebted countries in Europe--Greece, ireland, Portugal eetc. But the problem reached to such a situation where the pressure is increasing for imposing similar austerity measures in the larger economies of Europe-Italy, France and Spain.
The developments in middle-east (Arab countries) are impacting the oil prices. The aggression on Libya by America resulted in increase of the price of raw oil by 25 dollars per barrel. Now America is preparing to attack Iran. If it happens, the oil prices will increase further.
The world economic situation and the consequent economic situation in India in 2012 will thus be more bad when compared to the already bad situation that prevailed in 2011.
((Based on the article by Gudipudi Vijayarao, published in Prajasakti, Telugu Daily dated 5-1-2012)
(What is the impact of this situation and how to come out of it--this will be discussed in the next blog entry)
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