India’s Investment Slowdown: The High Cost of Economic Policy Uncertainty


By Rahul Anand and Volodymyr Tulin

India, after witnessing spectacular growth averaging above 9 percent over the past decade, has started to slow in the last few years. The slump in infrastructure and corporate investment has been the single biggest contributor to India’s recent growth slowdown.

India’s investment growth, averaging above 12 percent during the last decade fell to less than one percent in the last two years. What is especially worrisome is that more and more investment projects are getting delayed and shelved, while the pipeline of new projects has become exceptionally thin.

This slowdown has sparked an intense public debate about its causes. Some commentators, including representatives of the business community, argue that high interest rates, which raise financing costs, are the major culprit, dampening investment.  Others maintain that interest rates are only partly responsible for the current weak levels of investment, suggesting that a host of other factors, particularly on the supply side, are at play.

Our new Working Paper seeks to shed some light on the reasons behind this investment malaise. Using a novel index of economic policy uncertainty—an innovation in our analysis—we find that heightened uncertainty regarding the future course of broader economic policies and deteriorating business confidence have played a significant role in the recent investment slowdown. 

Continue reading

The Outlook for Latin America and the Caribbean in 2014


Alejandro WernerBy Alejandro Werner

(Version in EspañolPortuguês)

Looking to the year ahead, how do we see the global economic landscape, and what will this mean for our region? This question is especially on people’s minds today, given the risks of deflation in advanced economies and of sustained turbulence in emerging markets.

Despite these risks, we expect that the region will grow a little faster than last year—increasing from 2.6 percent in 2013 to 3 percent in 2014. Stronger global demand is one part of the story, but not the whole story; volatility is likely to be a significant feature of the landscape ahead. And regional growth rates will still be in low gear compared to historical trends, and downside risks to growth remain. So, let’s start with the global scene.

Continue reading

An Important Starting Point—with One Gap


Guest post by David H. Romer,
University of California, Berkeley, and
co-host of the Conference on Macro and Growth Policies in the Wake of the Crisis

I had one major source of unhappiness with last week’s conference: the participants were largely silent about the dismal outlook in the advanced economies for the next several years. The current outlook for unemployment in the United States, Europe, and Japan is probably worse than it was in late 2008. Then, mainstream forecasts for 2009–2011 showed unemployment rising sharply—but generally to levels below what we are experiencing today—and then returning toward normal at a moderate pace. Today, not only is unemployment higher than most 2008 forecasts of its peak levels, but the expected pace of recovery is weaker.

Despite this deterioration, the dire sense of urgency in late 2008 has not increased. Indeed, it has largely disappeared. I find this complacency in the fact of vast, preventable suffering and waste hard to understand. Continue reading

Follow

Get every new post delivered to your Inbox.

Join 805 other followers

%d bloggers like this: