It's that time of year when columnists are tempted to speculate about what this New Year will bring. Who am I to resist the temptation?
Image: Global economic growth will continue to be tepid at 2.5 per cent or less. Photograph: Reuters
So here goes: Shankar Acharya gives ten predictions on key politico-economic developments in the world and ten for India.
As the World turns
- Global economic growth will continue to be tepid at 2.5 per cent or less (in contrast to the 2.9 per cent recently forecast by the World Bank's Global Economic Prospects), with the major economies of the United States, Europe and China (which together account for 60 per cent of the world economy) expanding no faster than they did in 2015.
- China's $11 trillion economy will grow appreciably slower than the seven per cent officially estimated in 2015. But even if the rate slows to five per cent, the Chinese economy will add more to world growth than any other nation.
- Despite this unprecedented economic slowdown and the pushback to the high-level, anti-corruption drive of the past three years, President Xi Jinping and the Communist Party will continue to rule China.
- There will be less political stability in Europe, as the backlash to surging refugee inflows from conflict-ravaged West Asia gains momentum and the euro zone comes under renewed economic and financial strain. Germany's towering Angela Merkel may well become a political casualty before the year's end.
- Although it will be a close-run thing and Conservative Party backbenchers will scare plenty of Europeans, "Brexit" won't occur; enough sensible Brits will blink at the brink.
- The deep fault lines of broken states, the Sunni-Shia schism, Islamic State of Iraq and Syria and the implacable Israeli opposition to a two-state solution will ensure that West Asia continues to be unstable and a threat to world order.
- Predicting international oil prices is a mug's game; certainly there is no dearth of pundits who failed to forecast the post-mid-2014 crash in prices. Still, here goes: Brent crude will be trading at $50 per barrel (or higher) by December.
- Ten months before the next American presidential election, most of the world is scared witless by the slate of leading Republican candidates; and perhaps most Americans are too. Barring accidents and health setbacks, Hillary Clinton will be the first woman to be elected US President in November.
- Big commodity exporters will have another very bad year, including major oil exporters, Australia and the B(razil), R(ussia) and S(outh Africa) of the now tottering BRICS. But this won't prevent Russian President Vladimir Putin from projecting military power against Western hubris and being popular amongst Russians in the bargain.
- Technological advances will continue apace, disrupting quite a few industries worldwide; I don't pretend to know which of these will be hit how and hardest (if I had an inkling, I might not be penning this column!).
At home in India
- Despite the finance minister's hopes for nine per cent economic growth in 2016/17, we would be lucky if the official data (new series) reveal growth in the order of seven per cent. And allowing for the well-known frailties of the new series, that means "real underlying economic growth" is likely to be only five-six per cent.
- Consumer price inflation will stay below six per cent annual rate throughout the year, and probably below five per cent in the second half of the year. The Reserve Bank of India (RBI) will reduce the policy rate by 25-50 basis points, but this will have little impact on investment and growth.
- The previous year's poor export performance will persist, given our weak policies, lacklustre world economic conditions, and the special problems spawned by China's slowdown and the ongoing volatility in its financial and currency markets. The rupee to US dollar rate is likely to be in the range of 70-75 by December.
- Against this background and the continued stagnation in private investment, next month's Union Budget will succumb to the temptation to extend the "pause" in fiscal consolidation into the coming financial year, with a deficit projection of around four per cent of gross domestic product or GDP. In a context of single digit nominal GDP growth, this will worsen future debt dynamics and place upward pressure on medium-term interest rates.
- The Constitution Amendment Bill ushering in the new goods and services tax will finally pass both houses of Parliament and the required minimum of state legislatures. Making it work productively and efficiently will remain a challenge for several years.
- In spite of the very creditable efforts of the RBI to pressure public sector banks to clean up their balance sheets, these banks will continue to be highly stressed throughout the year and will seek larger injections of capital support from the government.
- Five years after her rocky start as chief minister of West Bengal, Mamata Banerjee and her Trinamool Congress will win a second term in the forthcoming elections in the state.
- In Tamil Nadu, despite all the political-legal turbulence of past years, as well as the recent, devastating floods in Chennai, J Jayalalithaa will secure a second consecutive term in the state elections later this year.
- In Kerala, it is notoriously hard to predict which of the Democratic Fronts (Left or United) will win the next election. The usual thumb rule is that winner will be the non-incumbent. If that happens, it is the turn of the Left Democratic Front, anchored by the Communist Party of India (Marxist).
- Pakistan-sponsored terrorism will continue to thwart any serious improvement in bilateral relations. The even more worrying prospect is of a major terror action comparable in scale to the ghastly 26/11 attack on Mumbai…and the virtually inevitable counter-action.
Actually, if recent years are any guide, quite a few of the big things that will happen in 2016, both in the world and in India, are beyond the scope of my crystal ball and hence not in this list.
The author is Honorary Professor at ICRIER and former Chief Economic Adviser to the Government of India. These views are his own.