China and India are the new engines of world economic growth, replacing the United States and other developed countries, International Monetary Fund managing director Rodrigo Rato said Tuesday. He said China overtook the United States this year to become the biggest contributor to world economic growth.
"For the first time, the largest contribution to global growth will now be made by China," Rato told a business conference in the Philippines. "Looking ahead, we expect this pattern of growth to continue ... we expect China - and increasingly India - to grow in importance as engines of global growth." He said China would grow by more than 11 percent and India at around nine percent this year, with almost equal rates in 2008.
After slowing down, the US economy would "regain momentum gradually as the drag from the current housing correction and the softness in the business sector dissipates." "Prospects in Europe and Japan remain good," Rato added, without giving specific figures.
"The outlook for the global economy is generally good and the economic prospects of most countries in emerging Asia are also good," he said. At the same time, Rato warned that the oil market and capital flows were a major concern.
While the global economy had easily shrugged off the high oil prices driven by increased demand, "a supply shock could be much more damaging to global growth."
Inflows of capital to emerging economies could "complicate macro-economic management and expose the countries that receive them to an abrupt reversal of flows when sudden shocks occur," he added.
Rato also said there was a "danger of a backlash against globalization" as many people felt mainly benefitted the wealthy and educated. He said the best way to address this inequality was to increase investment in education and technology and give the poor more access to infrastructure, utilities and financial services so they could also benefit from globalisation as well.
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