South Asia: global economic factors contributing to this trend:• Progress in promoting growth by moving private improved macro-management
• Greater integration with the global economy
• Loose monetary and fiscal policies and strong referral entries have strengthened domestic demand
• Restrictions on Chinese exports of textiles and clothing, and strong external demand, continued to slow down the growth of strong
Forecasts for growth in 2007 and 2008
To slow to a still robust slowly 7.5% in 2007 and 7% in 2008 is estimated GDP in southern Asia.
Factors contributing to slower than expected weaker external demand, reflecting slower growth in the United States 2007, tighter monetary and fiscal policies at national and international monetary conditions tighter.
Risk and policy challenges for South Asia. Should not tighten policy demand continues to expand well above supply inflation unexpectedly, current account deficits will be higher, larger and more pronounced and disturbing slowdown later. In addition to widening inequalities in the region can not only make less vigorous growth for poverty reduction, but lead to new social conflicts or aggravate existing.
Internal and external political tensions, also poses a risk. The internal conflict simmering in Sri Lanka and international tensions on the borders of the Islamic Republic of Pakistan generate instability and reduce the confidence, which drags on growth, particularly investment. An escalation of this situation, or the emergence of political conflicts elsewhere in the region, can lead to a reduction in production, with potentially serious consequences for society's most vulnerable members.
Deficit financing in South Asia
Despite the growing sugar is still rapid industry income tax raised to 7.1 percent of global GDP due to an increase in the cost of energy, the implicit subsidization and investment programmes for the large public sector.
Higher public expenditure on reconstruction and related natural disasters have contributed to a deficit of public authorities, especially in Bangladesh, the Maldives, Islamic Republic of Pakistan and Sri Lanka. These factors have contributed to the growth of investment really fast – over 13% in India and 8% in the Islamic Republic of Pakistan.
The main decrease took place in Sri Lanka, where the current account deficit projected to reach 4.9% of GDP in 2006, compared to 2.8% in 2005, due to a sharp increase in Import growth, combined with a weaker export growth.
Entries for the strong and weak domestic demand is estimated to have supported Nepal's current account surplus of 2% of GDP, while in Bangladesh, remittances and strong export growth is expected to put the current account to a surplus of 1 percent of GDP.
Inflation in South Asia
Reflects the very strong demand, inflation in the region increased from an average of 3.8% in 2003 to 7.8% in September. In 2006 increased inflation rates in Bangladesh, India and Nepal. It is hoped that tighter monetary policy in the Islamic Republic of Pakistan to bring inflation down to around 8% from 9.1% in 2005.
Import, export
The influence of excessive domestic demand is also reflected in the strength of the Import volumes are estimated to have increased by 24% in 2006. As a result, despite an increase of 22% record in the sector of external exports contributed to regional growth of 1.7%.The Price Of Oil
Higher-than-expected international oil prices due to the significant disruption in supply is also a major risk for the region. Higher prices would have a direct impact on inflation, the deficit on current account and the remainder of the Government to greater government spending on fuel subsidies.