Global economic growth in the first half of 2015 has been modest, despite strengthening demand in the United States. “One reason for the lack of acceleration in global growth is that policy measures to support demand have been limited mostly to monetary accommodation, as fiscal policy has been either neutral or restrictive in many parts of the world,” said the semi-annual 'Report to Congress on International Economic and Exchange Rate Policies'.
“On a positive note, India's recovery has strengthened under a new reform agenda; since it is not a large importer, however, it is not yet a major driver of global growth,” the report adds.
According to the report, India's foreign exchange reserves reached an all-time high in June 2015 as the central bank purchased foreign currency to moderate appreciation pressures from foreign investment inflows on the rupee, particularly in the first quarter of the year. As of August 2015, with $328 billion India stood eighth in terms of major holders of foreign currency reserves.
A major reason for the growth in India's total foreign exchange reserves was a drop in oil prices, which is estimated to have saved $44 billion in imports in the first half of 2015. However, China's savings from imports of oil at lower prices were much higher at $120 billion during the same period.
On the euro area, the report says, it has emerged from recession, but its growth is highly uneven and too soft overall, and is characterised either by pockets of quite high unemployment, as in Spain and Greece, or very large current account surpluses, as in Germany and the Netherlands. “A major concern in the euro area is that demand is not stronger despite the extent of cyclical stimulus now in place.”
About emerging market economies, the report says weaker outlook is evident across these economies, which, at more than half of the world economy, exert a growing influence over global economic prospects. The slowdown in domestic Chinese investment and Chinese demand for imported commodities and components is having wide-ranging implications for other economies, and a further slowdown would add to these concerns.
“Korea's economy was weak in the first half of 2015 as sluggish domestic demand growth was insufficient to offset weaker external demand. Brazil is entering its second year of recession and will not be a source of growth in Latin America. Russia is struggling due to economic mismanagement, lower oil prices, and the impact of economic sanctions,” the report said. (RKS)
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