Global Economic Dynamics
and their Implications for India
Subir Gokarn
Executive Director, IMF
IMC Chamber of Commerce & Industry
Mumbai, February 9, 2017
Structure of Presentation
• Growth Outlook
• Four Key Drivers
o Trade
o Investment
o Technology
o Politics
• Implications for South Asia
Growth Outlook
Growth Variations
2016
GDP Growth Rates (%)
2017
2018
World
USA
Euro Area
3.1
1.6
1.7
3.4
2.3
1.6
3.6
2.5
1.6
4.2
3.0
2.4
China
India
6.7
6.6
6.5
7.2
6.0
7.7
9.9
7.1
1998-2007
Messages
• IMF's World Economic Outlook did successive downgrades
• This trend appears to have bottomed out
• But, that's where it seems to be staying!
• "The New Mediocre"
• "Too Slow for Too Long for Too Few"
Opportunities
But…
• Differentiated performance and recovery patterns
• Role of domestic and regional factors
• How to grow when others aren't?
Four Key Drivers
Trade: Remarkable Slowdown
• Global trade in G&S has grown by 3% since 2012
• This is less than half the rate seen the previous 30 years
• Between 1985-2007, trade grew twice as fast as GDP
• Since then, they are at the same pace
• No longer an Engine of Growth?
Trade: Contributors to the Slowdown
(WEO Oct 2016)
• Deceleration in global demand
• Increase in protection in various forms
• Peaking out of growth in global supply chains
Investment: Also in Slow Mode
• Growth rate in Investment slowed from 12% p a during 2003-08 to
3.4% in 2015
• Steady deceleration over the past 5 years
• 70% of EMDEs show investment growth below long-term average,
compared with 30% in 2006
• Forecasts indicate persistence of sluggishness/decline
Investment: Contributors to the Slowdown
• Sluggish global demand
• Commodity price patterns
• Financial constraints: risk aversion
• Excess capacity
• "Unearthed" capacity
Investment: Excess Capacity in Chinese Industries
Investment: "Unearthed" Capacity
• Two extremely valuable companies have no conventional assets –
UBER and AIRB&B
• They have "unearthed" capacity
• Houses and personal cars were not considered commercial assets, but
UBER and AIRB&B have converted them
• Several other businesses are similarly unearthing capacity
Technology: Rise of the Robots
• Robotics moving into increasing number of manufacturing activities
• From metal-forming to shoes; even to rotis!
• AI displacing humans in variety of activities – call centres!
• Rapid obsolescence of skilling and training mechanisms
• Where are the jobs going to come from, if at all?
Politics: Reversing the Tide
• Global integration appears to be in retreat
• Perception of iniquitous distribution of benefits
• Are protectionist forces going to gain ground in national
governments?
• Implications for domestic policies
Implications for India
Threats and Responses
• Trade decline and protectionist portents
• Plug into the Growth Neighbourhood
• Diversify to exploit regional opportunities
• Investment weakness
• Infrastructure and EODB
• But, need to understand the "new" investment dynamic
• Conventional drivers may be becoming less relevant
Threats and Responses
• Automation – from Demographic Dividend to Demographic Disaster?
• Complementarities between AI, robots and people
• Forward-looking assessment of and training requirements
• Affordable and sustainable safety nets
• Global political trends
• Collaborative multilateral counters to dis-integration
• Credible sharing of benefits