By Lalit K JhaWashington, Oct 14 (PTI) Even as the gathering pace ofglobal economic recovery is reassuring, the persistence of lowproductivity and potential growth in advanced economiesremains worrisome, Union Finance Minister Arun Jaitley hassaid.
In his address to the annual meetings of InternationalMonetary Fund and World Bank, Jaitley said it is reassuringthat economic recovery has gathered pace.
Global GDP growth is poised to increase in 2017 and 2018with improving traction in growth performance in the eurozone, Japan, emerging Asia and Europe, as well as in Russia,he noted.
While the persistence of low productivity and potentialgrowth in advanced economies (AEs) remains worrisome, growthin emerging markets and developing economies (EMDEs) isexpected to recover going forward, he said.
The prospects in commodity exporting countries continueto remain challenging due to ongoing adjustments to lowcommodity prices, he added.
"India will continue to perform robustly on the back ofcredible macroeconomic adjustments and structural reforms,"Jaitley said.
Noting that the near-term global financial stability hasalso strengthened due to cyclical recovery in global growthamid supportive monetary conditions, he said on the otherhand, although improved capital and liquidity buffers haveenhanced the health of the banking sector in general, many ofthem continue to grapple with legacy problems and lowprofitability.
Moreover, financial risks stemming from the rapidlyraising leverage of the private non-financial sector amid lowinterest rates have increased medium-term risks to financialstability, he said.
Sudden reversal of monetary accommodation by AEs couldincrease policy strains in EMDEs, he cautioned.
"The risks of growing populism and consequential loss intrade volumes will affect global recovery adversely - and itis incumbent upon all of us to foster cooperative multilateralefforts to boost fair trade practices," he said.
Observing that growth in the US and the euro zone isexpected to improve in 2017 compared to 2016, he said therecovery in Japan is continuing and is likely to get better in2017 on the back of stronger domestic and external demand.
It is now well understood that monetary policyaccommodation alone may not be enough to re-energise growth inAEs, and structural reforms in alignment with growthsupportive fiscal policies would enhance productivity andpotential growth, he told the gathering of world financialleaders.
Jaitley said improved momentum in the Chinese economyduring the first half of this year due to rising domesticdemand is reassuring for global growth, although the risks tofinancial stability owing to large overhang of financialleverage require close monitoring.
Going forward, Brazil is expected to overcome recessionand Russia is likely to grow robustly this year on recovery ofdomestic and external demand.
Sub-Saharan economies are also likely to improve theirperformances this year.
"As for the Indian economy, the sound fundamentals andnumber of progressive policy initiatives taken in the last fewmonths will provide the basis for a strong prognosis andconvergence with growth potential," Jaitley said.
Of the view that growth in EMDEs is poised to strengthenthis year, he said, however, commodity-exporting countriesamong them remain challenged by their ongoing adjustments todeclining export earnings.
"Policy frameworks would have to be strengthened byimplementing structural policies in alignment with fiscalpolicies such as promoting growth friendly investments and/orbuilding buffers where the fiscal space is limited. At thesame time, proactive micro and macro prudential policies wouldbe needed to sharpen risk management practices to reducefinancial vulnerabilities and enhance resilience," he said.
PTI LKJKUN.
This is unedited, unformatted feed from the Press Trust of India wire.