Briefing Note on ‘Euro Zone Crisis and its Impact on India’ July 2012

by Véronique Queffélec on septembre 2, 2012


Section 1 – Global economic scenario

The weakness that is being seen in major developed economies poses a risk to world economic stability. The abysmal fiscal deficit situation has also now evolved into a source of political contention. According to certain sections the prime reason behind the increasing deficits has been falling government revenues and rising social benefit payments. The rise in the borrowings cost has further compounded this situation. This rising public debt has engendered political and financial stress in a number of European countries and, more broadly, has undermined support for further fiscal stimuli.

A much weaker recovery of the world economy is far from a remote possibility, especially as continued high unemployment, financial fragility, enhanced perceptions of sovereign debt distress and inadequate policy responses could further undermine business and consumer confidence in the developed countries.

Economic growth may remain moderate over coming quarters owing to weak global outlook in general and contagion of the Euro Zone crisis in particular. Primarily talking about the slowdown that is being seen in the Euro Area, one can see that it is spreading through the channels of trade, finance and business and investor confidence sentiments to other emerging economies as well. Moreover, the recent talks about possible fiscal consolidation measures being undertaken by some of the advanced economies could further impact demand and growth adversely.

We try and assess the global situation by looking at primarily three parameters:

  • Gross Domestic Product
  • Gross Debt to GDP Ratio
  • Capital Account Deficit

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