Q1) Economic Outlook of a) World, b) USA, c) EU, d) Japan, e)

China and India

A) World
● Global growth remains subdued. Since the April World Economic Outlook (WEO)
report, the United States further increased tariffs on certain Chinese imports and
China retaliated by raising tariffs on a subset of US imports. Additional escalation
was averted following the June G20 summit. Global technology supply chains
were threatened by the prospect of US sanction.
● Against this backdrop, global growth is forecast at 3.2 percent in 2019, picking up
to 3.5 percent in 2020 (0.1 percentage point lower than in the April WEO
projections for both years). GDP releases so far this year, together with generally
softening inflation, point to weaker-than-anticipated global activity. Investment
and demand for consumer durables have been subdued across advanced and
emerging market economies as firms and households continue to hold back on
long-range spending. Accordingly, global trade, which is intensive in machinery
and consumer durables, remains sluggish. The projected growth pickup in 2020
is precarious, presuming stabilization in currently stressed emerging market and
developing economies and progress toward resolving trade policy differences.
● Risks to the forecast are mainly to the downside. They include further trade and
technology tensions that dent sentiment and slow investment; a protracted
increase in risk aversion that exposes the financial vulnerabilities continuing to
accumulate after years of low interest rates; and mounting disinflationary
pressures that increase debt service difficulties, constrain monetary policy space
to counter downturns, and make adverse shocks more persistent than normal.
● Multilateral and national policy actions are vital to place global growth on a
stronger footing. The pressing needs include reducing trade and technology
tensions and expeditiously resolving uncertainty around trade agreements
(including between the United Kingdom and the European Union and the free
trade area encompassing Canada, Mexico, and the United States). Specifically,
countries should not use tariffs to target bilateral trade balances or as a substitute
for dialogue to pressure others for reforms. With subdued final demand and
muted inflation, accommodative monetary policy is appropriate in advanced
economies, and in emerging market and developing economies where
expectations are anchored. Fiscal policy should balance multiple objectives:
smoothing demand as needed, protecting the vulnerable, bolstering growth
potential with spending that supports structural reforms, and ensuring sustainable
public finances over the medium term. If growth weakens relative to the baseline,
macroeconomic policies will need to turn more accommodative, depending on
country circumstances. Priorities across all economies are to enhance inclusion,
strengthen resilience, and address constraints on potential output growth.

B) USA
● In the United States, 2019 growth is expected to be 2.6 percent (0.3 percentage
point higher than in the April WEO), moderating to 1.9 percent in 2020 as the
fiscal stimulus unwinds. The revision to 2019 growth reflects stronger-than-
anticipated first quarter performance. While the headline number was strong on
 the back of robust exports and inventory accumulation, domestic demand was
somewhat softer than expected and imports weaker as well, in part reflecting the
effect of tariffs. These developments point to slowing momentum over the rest of
the year.

C) EU
● Growth in the euro area is projected at 1.3 percent in 2019 and 1.6 percent in
2020 (0.1 percentage point higher than in April). The forecast for 2019 is revised
down slightly for Germany (due to weaker-than-expected external demand, which
also weighs on investment), but it is unchanged for France (where fiscal
measures are expected to support growth and the negative effects of street
protests are dissipating) and Italy (where the uncertain fiscal outlook is similar to
April’s, taking a toll on investment and domestic demand). Growth has been
revised up for 2019 in Spain, reflecting strong investment and weak imports at
the start of the year. Euro area growth is expected to pick up over the remainder
of this year and into 2020, as external demand is projected to recover and
temporary factors (including the dip in German car registrations and French street
protests) continue to fade.

D) Japan
● Japan’s economy is set to grow by 0.9 percent in 2019 (0.1 percentage point
lower than anticipated in the April WEO). The strong first quarter GDP release
reflects inventory accumulation and a large contribution from net exports due to
the sharp fall in imports, thus masking subdued underlying momentum. Growth is
projected to decline to 0.4 percent in 2020, with fiscal measures expected to
somewhat mitigate the volatility in growth from the forthcoming October 2019
increase in the consumption tax rate.

E) China, and India

● Emerging and developing Asia is expected to grow at 6.2 percent in 2019–20.
The forecast is 0.1 percentage point lower than in the April WEO for both years,
largely reflecting the impact of tariffs on trade and investment. In China, the
negative effects of escalating tariffs and weakening external demand have added
pressure to an economy already in the midst of a structural slowdown and
needed regulatory strengthening to rein in high dependence on debt. With policy
stimulus expected to support activity in the face of the adverse external shock,
growth is forecast at 6.2 percent in 2019 and 6.0 percent in 2020—0.1
percentage point lower each year relative to the April WEO projection. India’s
economy is set to grow at 7.0 percent in 2019, picking up to 7.2 percent in 2020.
The downward revision of 0.3 percentage point for both years reflects a weaker-
than-expected outlook for domestic demand.

Q2) Factors that is cause of concern for increase in economic

activity in India.
Economic growth is measured by the increase in a country’s total output or real Gross
Domestic Product (GDP) or Gross National Product (GNP). The Gross Domestic
Product (GDP) of a country is the total value of all final goods and services produced
within a country over a period of time. Therefore, an increase in GDP is the increase in a
country’s production.

Factors That Affect Economic Growth

1.Natural Resources
The discovery of more natural resources like oil, or mineral deposits may boost
economic growth as these shifts or increases the country’s Production Possibility
Curve. Other resources include land, water, forests and natural gas.
Realistically, it is difficult, if not impossible, to increase the number of natural
resources in a country. Countries must take care to balance the supply and
demand for scarce natural resources to avoid depleting them. Improved land
management may improve the quality of land and contribute to economic growth.
For example, Saudi Arabia’s economy has historically been dependent on its oil
deposits.

The efficient utilization or exploitation of natural resources depends on the skills and
abilities of human resource, technology used and availability of funds. A country
having skilled and educated workforce with rich natural resources takes the
economy on the growth path. The best examples of such economies are
developed countries, such as United States, United Kingdom, Germany, and
France. However, there are countries that have few natural resources, but high
per capita income, such as Saudi Arabia, therefore, their economic growth is very
high. Similarly, Japan has a small geographical area and few natural resources,
but achieves high growth rate due to its efficient human resource and advanced
technology

2.Physical Capital or Infrastructure

Increased investment in physical capital, such as factories, machinery, and
roads, will lower the cost of economic activity. Better factories and machinery are
more productive than physical labour. This higher productivity can increase
output. For example, having a robust highway system can reduce inefficiencies in
moving raw materials or goods across the country, which can increase its GDP.
Involves land, building, machinery, power, transportation, and medium of
communication. Producing and acquiring all these manmade products is termed
as capital formation. Capital formation increases the availability of capital per
worker, which further increases capital/labour ratio. Consequently, the
productivity of labour increases, which ultimately results in the increase in output
and growth of the economy.

3.Population or Labour
 A growing population means there is an increase in the availability of workers or
employees, which means a higher workforce. One downside of having a large
population is that it could lead to high unemployment.

4.Human Capital
An increase in investment in human capital can improve the quality of the labour
force. This increase in quality would result in an improvement of skills, abilities,
and training. A skilled labour force has a significant effect on growth since skilled
workers are more productive. For example, investing in STEM students or
subsidizing coding academies would increase the availability of workers for
higher-skilled jobs that pay more than investing in blue collar jobs. Refers to one
of the most important determinants of economic growth of a country. The quality
and quantity of available human resource can directly affect the growth of an
economy.

On the other hand, a shortage of skilled labour hampers the growth of an

economy, whereas surplus of labour is of lesser significance to economic growth.
Therefore, the human resources of a country should be adequate in number with
required skills and abilities, so that economic growth can be achieved.

5.Technology
Another influential factor is the improvement of technology. The technology could
increase productivity with the same levels of labour, thus accelerating growth and
development. Refers to one of the important factors that affect the growth of an
economy. Technology involves application of scientific methods and production
techniques. In other words, technology can be defined as nature and type of
technical instruments used by a certain amount of labour.

Technological development helps in increasing productivity with the limited

amount of resources. Countries that have worked in the field of technological
development grow rapidly as compared to countries that have less focus on
technological development. The selection of right technology also plays an role
for the growth of an economy. On the contrary, an inappropriate technology-
results in high cost of production.

6.Social and Political Factors:

Play a crucial role in economic growth of a country. Social factors involve
customs, traditions, values and beliefs, which contribute to the growth of an
economy to a considerable extent.
For example, a society with conventional beliefs and superstitions resists the
adoption of modern ways of living. In such a case, achieving becomes difficult.
Apart from this, political factors, such as participation of government in
formulating and implementing various policies, have a major part in economic
growth.

Growth doesn’t occur in isolation. Events in one country and region can have a
significant effect on growth prospects in another. For example, if there’s a ban on
out sourcing work in the United States, this could have a massive impact on
 India’s GDP, which has a robust IT sector dependent on outsourcing. And trade
war between USA and China regards import tariffs.

7.Law
This increment means factories can be more productive at lower costs.
Technology is most likely to lead to sustained long-run growth. An institutional
framework which regulates economic activity such as rules and laws. There is no
specific set of institutions that promote growth.

Factors that Limit Economic Growth:

1. Poor health and low levels of education
People who don’t have access to healthcare or education have lower levels of
productivity. This lack of access means the labour force is not as productive as it
could be. Therefore, the economy does not reach the productivity it could
otherwise.

2. Lack of necessary infrastructure

Developing nations often suffer from inadequate infrastructures such as roads,
schools, and hospitals. This lack of infrastructure makes transportation more
expensive and slows the overall efficiency of the country.

3. Flight of Capital
If the country is not delivering the returns expected from investors, then investors
will pull out their money. Money often flows out of the country to seek higher rates
of returns.

4. Political Instability
Similarly, political instability in the government scares investors and hinders
investment. For example, historically, Zimbabwe had been plagued with political
uncertainty and laws favouring indigenous ownership. This instability has scared
off many investors who prefer smaller but surer returns elsewhere.

5. Institutional Framework
Often local laws don’t adequately protect rights. Lack of an institutional framework
can severely impact progress and investment.

6. The World Trade Organization

Many economists claim that the World Trade Organization (WTO) and other
trading systems are biased against developing nations. Many developed nations
adopt protectionist strategies which don’t help liberalize trade.