World economy not out of the woods yet: FM

Finance Minister Pranab Mukherjee today said the world economy was not out of the woods yet and there was a need to calibrate the exit from fiscal stimulus.

“We will, no doubt, need to rightly frame our exit policy considering our respective economic situations and push for structural reforms to enhance the potential growth,” he said addressing the first session of G20 Finance Ministers’ and Central Bank Governors’ Meeting here.

Mukherjee said even though the risk of a global ‘double dip’ recession might not be high, it was important to acknowledge that the downside risks were elevated. He said that in dealing with high sovereign debt in some economies, unemployment in advanced countries, volatility of capital flows, inflationary pressures in emerging markets, and widening global imbalances, there was a danger of getting the monetary — fiscal policy mix wrong during the exit process.

Macroeconomic indicators say that global growth in the second quarter of this year has slowed down, and there are headwinds to sustaining the global recovery. The recovery in advanced economies remains fragile with high unemployment and sluggish household consumption.

Indian economy grew at 8.8 per cent during the first quarter of 2010-2011. The government is projecting the economy to grow at 8.5 per cent this year. There are concerns arising from inflationary pressures, and more importantly, from the uncertain external environment. However, with the strong domestic demand, a stable financial system and growing investor confidence we expect to remain on a high growth path, Mukherjee said.

Earlier, talking to the reporters on board a special aircraft, he said although the $3 trillion in stimulus had helped the countries, crisis was not yet over.

As the process of recovery had been slow in countries in North America and also there were uncertainties in Europe, the world leaders would have to consider ways and means to overcome the present situation and find the path forward, he added.