India to drive South Asian economic growth in FY16: UN

India's projected growth of 7.6 per cent this year and 7.7 per cent in 2016 will help accelerate economic growth in South Asia, according to a mid-year update of the UN World Economic Situation and Prospects (WESP), released today.

India's economic growth is projected to surpass that of China's, with a 7.7 per cent expansion of GDP in 2016, while China's economic growth is projected to decline to 6.8 per cent in 2016 from 7 per cent in 2015, according to the UN report.

South Asia's economic outlook is "largely favourable" since most economies are expected to experience a strengthening of growth in 2015-16 on the back of stronger domestic consumption and investment, and a pick-up in exports, says the report.

For the region as a whole, the report projected GDP growth of 6.7 per cent in 2015 and 6.9 per cent in 2016, up from an estimated 6.3 per cent in 2014.

"This revision mostly reflects a higher growth trajectory in India," it said.

Other Asian economies such as Iran and Pakistan are also expected to witness moderate growth, although for both countries significant uncertainties remain, the report said.

Across South Asia the report projected an expansion driven by buoyant household consumption and a gradual recovery in investment.

Private sector demand will be underpinned by a more benign macroeconomic environment, including considerably lower inflation.

In 2015, global consumer price inflation is expected to average 2.5 per cent, the lowest level since 2009. With slight recovery in oil prices and a pick-up in global activity, average inflation is forecast to accelerate to 3 per cent in 2016.

With average inflation in the region projected to fall to its lowest level in almost a decade, the report said, monetary policy has become more expansionary in several countries, notably in India and Pakistan.

South Asia's economies, however, will continue to face varying degrees of long-standing development challenges, including energy shortages, infrastructure deficits and political and social unrest, the report said.

The global economy will continue to grow at a modest pace, the report said and projected it to accelerate slightly from 2.6 per cent in 2014 to 2.8 per cent in 2015 and further to 3.1 per cent in 2016. The downside risks related to the upcoming move towards monetary policy normalisation in the US, ongoing uncertainties in the euro area, potential spillovers from geopolitical conflicts and persistent vulnerabilities in emerging economies, however, remain it added.

In the United States, the economic recovery remains on track and the short-term outlook is relatively favourable. Growth in the US is expected to pick up over the next quarters and reach 2.8 per cent in 2015, before decelerating slightly to 2.7 per cent in 2016.
 
Japan's GDP is projected to grow by 1.2 per cent in 2015 and 1.0 per cent in 2016.

In several countries such as Ukraine, Syria, Iraq and Yemen, military conflicts have taken a heavy human toll and led to widespread destruction.

While the negative economic impact has so far been limited to the sub-regional level, the risks lie in possible spillover effects of any regional conflict to the global level.

Potential transmission channels include trade, commodity prices and financial asset prices.

Geopolitical conflicts, especially in Africa and Western Asia, also remain risk factors for the global oil market, it said.