World economic growth is projected to slow down to 3.2% in 2007 before accelerating to 3.5% in 2008.
- The first half of the calendar year was depressing. America’s housing sector was slowing down sharply; oil prices were hovering around $75 a barrel; inflation and interest rates were seen headed for north; foreign investor were seen exiting the emerging markets and a hard landing of the US economy seemed immanent.
- In the second half, the not so successful attempt by
Israelof wiping out Hezbollah (the Iranian backed militia) in had brought in a change of scene. This failed mission meant that a war in Gulf (an attack on Lebanon Iranby or US to wipe out its nuclear infrastructure) had been averted – at least for the time being. Therefore oil prices started declining, inflationary pressures eased and the world economy bounced back. Israel
- So a change in
America’s policy and bombing of will disrupt oil supplies and destabilize the world economy. Oil prices, thus are carrying a ‘terror premium’, reflecting the risks to the world economy of conflagration in the Gulf. Iran
1. Recent growth rates are entirely due to global economic boom. This implies that a global downturn could seriously affect
2. Growth is consumption-driven and arises from a fortuitous surge in liquidity. But going by the investment intentions of the corporates as well as production and imports of capital good, it is reasonable to assume that growth is increasingly investment driven.
3. The economy is showing signs of ‘overheating’. The rise in inflation has been fuelled by shortages of agricultural products, not excess demand. Though real estate and stock prices look stretched, they do not pose any systemic risks.