Sluggish global economy stares at fiscal cliff

Dec 25 2012, 12:59 IST
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The outlook for growth remains weak with appreciable downside risks. (Reuters) The outlook for growth remains weak with appreciable downside risks. (Reuters)
SummaryThe outlook for growth remains weak with appreciable downside risks.

India and China will be key for the global economy to grow by even a modest three per cent in 2013, after bouts of debt turmoils across continents pushed it to fiscal precipice and an anaemic growth rate in 2012 left policymakers and politicians at crossroads.

Coined by the influential US Federal Reserve chief Ben Bernanke, 'fiscal cliff' -- better described as a combination of spending cuts and tax hikes -- seems to be the lingo for problem-ridden world economy in the New Year.

If emerging markets such as India and China grappled with spiralling inflation and risks of asset bubbles, the US and Europe remained almost stagnant despite record low interest rates in 2012.

Adding to the economic gloom, the 17-nation euro zone, a grouping of nations that share the common currency euro, continued to be bogged down by debt crisis which also took roots in Italy and Spain while suffocating Greece.

Though slow revival is happening in some emerging economies and developed nations, as the International Monetary Fund (IMF) recently said, "the outlook for growth remains weak with appreciable downside risks".

Going by IMF projections, the world economy is likely to expand 3.3 per cent this year, way lower than 3.8 per cent growth seen in 2012. The other projections call for a growth rate of 2-3 per cent for the global economy in the new year.

To start from Europe, the epicentre of debt crisis, the economic situation is jittery and the euro zone has again slipped into recession -- generally referred to as two straight quarters of negative growth.

Hundreds of billions of dollars worth bailout money has been absorbed by ailing Greece but the debt turmoil has only spread to other European nations, even pulling down some governments.

hile excessive risk taking ways triggered the 2008 financial collapse in the US, now it is austerity as well as lack of strong united actions among European nations that is

roiling the world economy.

For instance, the euro area economy shrunk by 0.1 per cent in the 2012 September quarter, following a contraction of 0.2 per cent in the previous three months.

Moving away from the sick Europe, emerging markets such as India and China too are reeling under slowdown pangs. However, compared to many of the ailing developed economies, these nations are the remaining bright spots in the dark

economic firmament.

However, expectations are high for China to return to eight per cent and India to over

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