Financial market woes, high commodity prices hurting growth: Chidambaram
13 Oct 2012
The global economy is facing heightened uncertainties with increased financial market fragilities and volatile commodity prices, which combine to make global economic outlook look quite worrisome despite several measures taken by the authorities, finance minister P Chidambaram said today.
Growth is faltering across regions, including in emerging market economies (EMEs) and this is a worrisome prospect, Chidambaram told the 26th meeting of the International Monetary and Financial Committee (IMFC) in Tokyo on Friday.
Uncertainties in major advanced economies have weighed on market confidence and sentiment. Consequently, the global economy has lost the upward momentum seen in the early part of the year and is now experiencing a synchronised slowdown. Many euro area economies are, in fact, in recession. By all indications, the global economy is likely to remain weak for a longer period than it was envisaged a few months back, he said.
In the last few years, robust growth in the EMEs cushioned the slowdown in global growth to a significant extent. However, fragile financial market conditions have dented business confidence in many EMEs. Capital flows to emerging market economies remain volatile, Chidambaram noted.
Despite weak global recovery, global commodity prices, especially energy, have remained elevated and volatile. Although a major risk to global oil prices is on account of geo-political tensions, large liquidity being injected by major advanced economies may also exert further pressure on oil prices. This will threaten both growth and inflation in emerging market economies, he said.
The sharp rise in global food prices is another major challenge that many emerging market economies, especially those that are already facing inflationary pressures, may have to contend with.
