ECONOMIC OUTLOOK 2012
GLOBAL ECONOMIC GROWTH WILL SLOW THIS YEAR.
May 28 - June 3, 2012
World economy is forecast to grow at 3.5 per cent for 2012. The advanced economies are forecast to grow by about 1.4 percent in 2012. In contrast, the emerging and developing economies are projected to grow at a faster pace at 5.7 percent in 2012.
Virtually all economies are expected to expand this year with the exception of some Euro countries. The countries in Euro region such as Spain, Italy, Greece and Portugal are expected to contract due their severe austerity fiscal measures to address their government sovereign debt problems.
China is expected to slow from 9.2 per cent growth in 2011 to 8.2 per cent growth for this year. India too is expected to slow with GDP growth of 6.9 per cent for this year from 7.2 per cent in 2011.
Performance of global economies for this year is forecast (3.5 per cent) to be lower than last year's 3.9 per cent. The slower China economy for this year, which is the world's second largest economy, has surely affected the global economic forecast.
The US remains on track to add 2.2 million jobs this year, despite a recent calm in hiring. The slowdown in job creation in March and April is at least partly due to early-year hiring by seasonal industries such as retail, leisure, and hospitality.
Job creation averaged 200,000 a month for the first four months of the year, slightly ahead of forecast of 185,000 a month for 2012.
Unemployment, now 8.1 per cent, will likely end the year around eight per cent. Despite the solid net gain in jobs, the jobless rate will not fall much because the ameliorating economy will attract more people into the workforce after the past several worst years.
With sizable evidence that the US economy will continue to grow at a moderate pace this year, job creation should pick up again in the months ahead. Consumers and business managers express confidence that the economy is improving.
Small-business owners, who do much of the hiring in the early stages of an economic expansion, say they expect higher sales and more hiring.
Pakistan economy is still in a dismal and fragile state. Its revival for the year 2012 depends upon regenerating the industrial sector by curtailing energy shortages and high interest rates that are presently deterring the private sector from investing.
Its changes in development expenditures (PSDP) this year will rest on resource mobilization and taxation reforms in the form of reformed general sales tax in the coming fiscal year.
In order to broaden the tax base and addressing governance issues in resource mobilization, the fiscal deficit has to come to a reasonable level by evolving consensus among all stakeholders for imposition of the RGST, wealth tax, capital gains tax and tax on agriculture income.
Pakistan's economy is expected to grow four percent in the coming financial year starting July 1. The figure compares with a 3.7 per cent growth forecast by the Asian Development Bank (ADB).
Analysts say rising global oil prices would probably be the biggest risk to Pakistan's economy in 2011. The country imports nearly 80 per cent of its oil needs.
The Asian Development Bank (ADB), in a report, has identified rising inflation, investment decline, low tax revenue, and losses at public-sector enterprises as other factors thwarting economic growth.
The ADB sees energy as the primary constraint for economic growth, stressing for better load-management to minimize commercial losses.
Furthermore, the ADB advises reforms in not only the energy sector but also state-owned enterprises, naming Pakistan Railways, Pakistan International Airlines (PIA), and Pakistan Steel Mills as entities suffering the steepest of losses.
The report adds: "The slow growth in recent years was exacerbated by widespread floods in FY2011. Unless progress can be made in resolving these fundamental problems, the growth outlook will stay modest."
ADB says that the current power system, with tariff and collections below cost recovery, is a major deterrent to investment for capacity expansion in the sector.
The economy of Pakistan is projected to grow by four per cent in 2012, which is an improvement from 2.4 per cent growth in 2011, according to the United Nations Economic and Social Survey of Asia and Pacific.
The economic growth of the country has increased mainly due to the enhanced output of agriculture sector. The agriculture sector was improving due to the post-flood recovery in cotton, rice, wheat, sugarcane and other minor crops.
The economic survey of Asia reported that to reduce the budget deficit in Pakistan, the government was making efforts to improve tax compliance and broaden the tax base.
The report further said that in order to address energy shortages, the government should take various measures including setting up viable new power projects, minimizing transmission and distribution losses including theft of electricity, increasing exploration of natural gas, crude oil and coal, tapping of regional markets and setting up infrastructure for energy imports.
Unless progress can be made in resolving the fundamental problems facing the country's economy, the growth outlook will stay modest. In 2012, the economic outlook is expected to stay modest and likely to hover around 3.6 per cent, explained the outlook.
The United Nations, in a report on Asia, has advised Pakistan to provide agricultural subsidies and introduce modern technologies to increase per acre yield, arrest rising food prices, and alleviate hunger.
The Economic and Social Survey for Asia and Pacific has said in its report that Pakistan faces increasing risk from rising food prices that directly affect the most vulnerable sections of the population.
The report suggests that the best way to bring food prices under control in the long term is to increase agricultural productivity.
"The country should continue to support rural development, a green revolution based on modern technology, and new seed varieties, subsidized supplies of inputs such as fertilizers, and provision of credit to farmers," it says.
The UN report also said that Pakistan faces challenge of stubborn inflationary pressures that would remain hovering up to 12 per cent this year.