45 CHAPTER II WORLD ECONOMIC & TRADE OUTLOOK AND INDIA’s TRADE PERFORMANCE 2.1 Global Scenario : 2.1.1 International Monetary Fund (IMF) in its World Economic Outlook, September 2007, stated that the global economy grew strongly in the first half of 2007, although turbulence in financial markets has clouded prospects. While the 2007 forecast has been little affected, the baseline projection for 2008 global growth has been projected Summary of World Output (Real GDP) (Annual percent change) Projections 2004 2005 2006 2007 2008 World Output 5.3 4.8 5.4 5.2 4.8 Advance economies 3.2 2.5 2.9 2.5 2.2 United States 3.9 3.1 2.9 1.9 1.9 Euro area 2.1 1.5 2.8 2.5 2.1 Japan 2.3 1.9 2.2 2.0 1.7 Other advanced economies 4.6 3.9 4.4 4.3 3.8 Newly industrilised Asian economies 5.9 4.7 5.3 4.9 4.4 Other emerging market and developing countries 7.7 7.5 8.1 8.1 7.4 Developing Asia 8.8 9.2 9.8 9.8 8.8 China 10.1 10.4 11.1 11.5 10.0 India 8.0 9.0 9.7 8.9 8.4 ASEAN-4 * 5.8 5.1 5.4 5.6 5.6 CIS Countries 8.4 6.6 7.7 7.8 7.0 Russia 7.2 6.4 6.7 7.0 6.5 Middle East 5.5 5.4 5.6 5.9 5.9 Western Hemisphere 5.7 4.6 5.5 5.0 4.3 Brazil 4.9 2.9 3.7 4.4 4.0 Mexico 4.2 2.8 4.8 2.9 3.0 Source : World Economic Outlook, September 07, International Monetary Fund WORLD ECONOMIC & TRADE OUTLOOK AND INDIA’S TRADE PERFORMANCE
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CHAPTER II
WORLD ECONOMIC & TRADE OUTLOOK AND INDIA’s
TRADE PERFORMANCE
2.1 Global Scenario :
2.1.1 International Monetary Fund (IMF) in its World Economic Outlook, September 2007,
stated that the global economy grew strongly in the first half of 2007, although
turbulence in financial markets has clouded prospects. While the 2007 forecast has
been little affected, the baseline projection for 2008 global growth has been projected
Summary of World Output (Real GDP)(Annual percent change)
Projections
2004 2005 2006 2007 2008
World Output 5.3 4.8 5.4 5.2 4.8
Advance economies 3.2 2.5 2.9 2.5 2.2
United States 3.9 3.1 2.9 1.9 1.9
Euro area 2.1 1.5 2.8 2.5 2.1
Japan 2.3 1.9 2.2 2.0 1.7
Other advanced economies 4.6 3.9 4.4 4.3 3.8
Newly industrilised Asian economies 5.9 4.7 5.3 4.9 4.4
Other emerging market and developing countries 7.7 7.5 8.1 8.1 7.4
Developing Asia 8.8 9.2 9.8 9.8 8.8
China 10.1 10.4 11.1 11.5 10.0
India 8.0 9.0 9.7 8.9 8.4
ASEAN-4 * 5.8 5.1 5.4 5.6 5.6
CIS Countries 8.4 6.6 7.7 7.8 7.0
Russia 7.2 6.4 6.7 7.0 6.5
Middle East 5.5 5.4 5.6 5.9 5.9
Western Hemisphere 5.7 4.6 5.5 5.0 4.3
Brazil 4.9 2.9 3.7 4.4 4.0
Mexico 4.2 2.8 4.8 2.9 3.0Source : World Economic Outlook, September 07, International Monetary Fund
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at 4.75 percent, supported by generally sound fundamentals and strong momentum
in emerging market economics. Risks to the outlook, however, are firmly on the
downside, centered around the concern that financial market strains could deepen
and trigger a more pronounced global slow down. Additional risks to the outlook
include potential inflation pressures, volatile oil markets, and the impact on emerging
markets of strong foreign exchange inflows.
2.1.2 Global Economic Environment: The global economy continued to expand
vigorously in the first half of 2007, with growth running above 5 percent. China’s
economy gained further momentum, growing by 11 ½ percent, while India continued
to grow at more than 9 percent and Russia at almost 8 percent. These three countries
alone have accounted for one-half of global growth over the past year. Robust
expansions also continued in other emerging market and developing countries,
including low-income countries in Africa. Among the advanced economies, growth
in the euro area and Japan slowed in the second quarter of 2007 after two quarters
of strong gains. In the United States, growth averaged 2-1/4 percent in the first half
of 2007 as the housing downturn continued to apply considerable drag and real GDP
growth is expected to slow down from the fourth quarter of 2007 onwards.
2.1.3 In U.S. the main story continues to revolve around the weak housing market. Spillovers
to other appear largely contained, and a further period of growth below potential is
the most likely scenario for the coming quarters. It is expected that drag from the
housing downturn will continue through 2008 and U.S. economy will continue at a
moderate pace.
2.1.4 In Euro area and Japan, World Economic Outlook has marked down the growth to
2.1 percent and 1.7 percent respectively. In Europe, tighter credit conditions and
slower export growth are the main factor likely to dampen growth. Japan has been
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directly impacted by recent financial disruptions, but a weaker external picture and
some softness in domestic spending, particularly consumption, are expected to slow
growth.
2.1.5 In emerging market and developing countries, growth is expected to remain strong
across all regions; albeit at a somewhat more moderate pace than the brisk growth
we have seen over the past two years. It is expected China and India will be the two
largest contributors to global growth. China is expected to grow by more than 11
percent, while India is expected to grow by 9 percent. Growth may moderate across
emerging Asia in 2008, reflecting slower trade growth as well as some policy
tightening in countries facing overheating pressures.
2.1.6 In Latin America, the pace of growth is likely to moderate from 5 percent in 2007 to
4 ½ percent in 2008, partly reflecting spillovers from the U.S. slowdown, but
strengthened policy fundamentals should limit the impact of market turbulence.
2.1.7 In emerging Europe and CIS countries, growth momentum this year remains strong,
although some countries that have relied heavily on large scale bank inflows may be
more affected by fallout from the recent financial troubles.
2.1.8 World Economic Outlook projected that inflationary pressures have re-emerged as a
key risk to global growth. Inflation pressures have raised concerns in the US, UK, the
Euro area and in some of the emerging market economies such as China, Malaysia,
Indonesia and Chile. The persistence of high food prices, oil prices sustained at
elevated levels and continued high prices of other commodities pose significant
inflation risks for the global economy. The turbulences in the international financial
markets since July 2007, triggered by defaults in the US sub prime market, deepened
in the subsequent months. These unusual developments indicated heightened
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uncertainties and emerging challenges especially for emerging market economies.
2.1.9 The major currencies have largely continued trends observed since early 2006. The
U.S. dollar has continued to weaken, although its real effective value is still estimated
to be above its medium-term fundamental level. The euro has appreciated but
continues to trade in a range broadly consistent with fundamentals. The Japanese
yen has rebounded strongly in recent months but remains undervalued relative to
medium-term fundamentals. The renminbi has continued to appreciate gradually
against the U.S. dollar and on a real effective basis, but China’s current account
surplus has widened further and its international reserves have soared.
2.2 WORLD’s MERCHANDISE EXPORTS & IMPORTS:
2.2.1 In 2006, the volume of world merchandise trade grew by 13 per cent while world
gross domestic product recorded a 5.4 per cent increase. This confirms the trend of
world merchandise trade growing by twice the annual growth rate of output since
2000.
2.2.2 The strong 2006 increase in the volume of merchandise trade is backed by a robust
recovery of European exports, which increased by 8.6 percentage points to 12.9 per
cent. The real merchandise exports of the United States grew at 11 per cent, and
China’s trade expanded by 27 per cent. South and Central America and the Caribbean
recorded a growth rate of 21 percent, the Commonwealth of Independent States
(25 per cent), and Africa (21 per cent). Exports of the Middle East also grew by 19
percent during 2006.
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Source : World Trade Organisation
2.2.3 Asia recorded higher merchandise export growth than import growth in 2006. In
2006, merchandise exports in volume terms were sustained by robust demand,
although patterns differed among regions. Exports from North America and Asia
grew faster than imports to the region. Asia’s exports grew by 17 per cent while
imports were up 15 per cent whereas North America exports grew by 14 percent
and imports grew by 11 percent. Europe recorded balanced export and import
growth of 13 percent and 14 percent respectively.
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2.2.4 Manufactures remain the most dynamic product group in merchandise trade.
Manufactures were again the most dynamic product group, increasing by 10 per
cent in constant prices in 2006. Trade in agricultural products recorded real growth
of 6 per cent. Rising prices and mild weather moderated global demand growth and
slowed the expansion of trade in fuels and mining products to 3 per cent in 2006.
2.2.5 Since the early 1950s, the volume of trade in manufactures has largely outperformed
primary products, growing at an annual rate of 7.5 per cent, while agriculture, and
fuel and mining products grew at 3.5 per cent and 4 per cent respectively.
2.2.6 World merchandise trade is still characterized by intra-regional flows. Distances are
still a barrier, inter-regional merchandise trade flows between North America, Europe
and Asia account for only 23 per cent of world trade. The most prominent growth in
2006 was recorded in Asia’s exports to Europe, which increased by 21 per cent.
Intra-regional trade flows of the three regions represent 53 per cent of world
merchandise trade and almost two thirds of the total merchandise trade of these
regions. Europe’s intra-trade shows the highest share (31 per cent), followed by
Asia (14 per cent) and North America (8 per cent). Intra-regional trade for other
regions (South and Central America, CIS, Middle East and Africa) account for only 25
per cent of their total exports.
2.2.7 Manufactures dominate the merchandise export structures of Asia, Europe and North
America. Asia has the highest share of manufactures in total exports, with more
than 80 per cent of the region’s exports stemming from this product group. In
contrast, the Middle East, Africa and the CIS are highly dependent on fuels and
mining products, with more than two thirds of their export revenues originating from
this product group. This pattern of specialization was accentuated with the rise in
international commodity prices. Least-developed countries show a similar structure
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with almost three quarters of their export revenues originating from primary
commodities and only a quarter earned through manufactures (mainly clothing).
South and Central America show the highest share of agricultural exports in their
total trade.
2.3 TRENDS IN INDIA’S FOREIGN TRADE :
2.3.1 EXPORT SCENARIO 2007-2008 (April - September 2007)
(i) India’s export was worth Rs.293964.31 crore during April- September 2007 which
was 4.7% higher than the exports, valued at Rs.280765.53 crores during April –
September 2006. In terms of US $, India’s export during April- September 2007
was to the tune of US $ 71909.61 million as against the export figure of US$ 61141.52
million during April- September 2006 showing an increase of 17.61%.
(ii) Four major groups falling in non-agricultural sector i.e. (i)Engineering goods 21.26%
(Rs.62501.03 Crores), (ii) Chemicals & Related products 13.68% (Rs.40213.22 crores)
