Booming World Economy

What is the issue?

• Almost all economies are growing worldwide for the first time since the 2008 financial crisis.
• But there are looming risks that needs to be addressed.

What are trends in major zones?

• USA - While Mr. Trump wants to strengthen the US economy is a positive, the recent tax reforms may distort the sensitive structure of world trade.
•  If everything goes as US strategists hope, the US current account deficit (essentially the balance of imports and exports) could be halved.
• Also, US companies such as “Apple”, which have long indulged in rigorous tax avoidance strategies would have to pay taxes at home.
• Germany – This is Europe’s main economy and has now seen strong growth for eight consecutive years and Unemployment is at a record low.
• The government is flush with cash due to swelling tax receipts and budget surpluses, and German exports continue to outstrip imports.
• But, for the past several years, the German government’s savings drive and strictly balanced budgets has led to poor government spending.
• This has resulted in creaking infrastructure, ill-equipped schools and universities, and delays in expanding broadband networks among others.
• Furthermore, Germany faces an acute shortage of qualified staff in many industries despite the increase in foreign skilled workers.
• Rest - The entire of Euro-zone’s formerly depressed economies such as Greece, Spain, Portugal and Ireland (except Italy) recorded significant growth.
• While except the war torn Middle East, all regions of the global economy have been growing in sync and economists project a 3.8% growth in 2018.
• While Brexit will cause some economic slowdown, the effect isn’t expected to be a sustained drag on the growth engines.

What is India’s case?

• China and India continue to lead the pack in Asia, and have the retained the tag of fast growing major economies.
• But India’s growth is expected to slow down from the current level although it is still projected at a robust 6.5%.
• The Modi government has also eased regulations for foreign investors in an effort to attract capital and boost growth.
• The country has become an attractive destination for foreign investment, receiving more than $60 billion in FDI, last year alone.
• Furthermore, India is set to overtake the United Kingdom and France to become the world’s 5^th largest economy next year.

What are the challenges?

• Despite the overwhelming positives, the global economy still faces a raft of threats and uncertainties, which could derail growth.

• German exporters are worried about their American sales and industrialists have demanded tax reforms to compensate for backlashes from US policies.
• On the political front, Mr. Trump’s irrational and intuitive actions has become a big cause of worry and uncertainty.
• Also, the Korean crisis seems to have no end and more trouble is also brewing in the Middle East, all of which can distort the global economy.
• It is essential to remember that every boom also carries within itself the germ of a crisis and needs cautious manoeuvring.

Source: The Indian Express