According
to the Mid-year Up-date of the UN World Economic Situation
and Prospects 2008, the world economy is `teetering
on the brink' of a severe downturn because of further
deterioration in the US housing and financial sectors
in the first quarter. The world economy is expected
to grow only 1.8% in 2008 (3.8% in 2007). The developing
countries are expected to grow by 5% this year and
4.8% next year, compared to a robust growth of 7.3%
in 2007. Financial risks have increased sharply in
both developed and developing countries because of
the runaway increase in oil and commodity prices,
the declining value of the US dollar, persistent global
imbalances, subprime meltdown, global imbroglio and
large leveraged positions in financial markets.
According to the UN report, "the baseline forecast projects a pace for world economic growth of 1.8% in 2008." No wonder, then, the governments and policymakers across the world are grappling with the challenges of growth slowdown, rising energy and commodity prices.
Inflation risks have come into sharper focus as a global challenge. In almost all countries, inflation is higher than their Central Banks' targets. World inflation is broadly composed of energy, agriculture and metals (both precious and other metals). The efforts to stimulate growth and ease credit conditions with lower interest rates are thwarted by higher inflation. Global consumer price inflation is now running at an annual pace of nearly 5.5%, compared to less than 4% in the last three years (Refer Table 1). This makes it necessary for central bankers and fiscal authorities around the world to pay close attention to potential inflation risks. |
