Reserve Bank of India governor D Subbarao has expressed concern over the rapid changes on the global economic front especially the US and Eurozone and its adverse impact on the emerging market economies (EMEs). If I were asked to pick the headline message of the presentation,it is that we are rapidly running out of time,and may,therefore,be running out of solutions, Subbarao said at the IMF meeting in Washington on Friday. According to the RBI governor,the two big flashpoints are: renewed anxiety in the US about recession and the deepening of the sovereign debt crisis in the eurozone. Each is by itself a big risk,but the bigger risk is that both could materialise simultaneously and interact with each other with adverse feedback loops manifested through trade,finance and confidence channels, he said. The problems are well known and the solutions are on the table. The main impediment to an effective resolution common to both flashpoints appears to be political. He said EMEs macroeconomic stability,price stability and financial stability are jeopardised by the global crisis through several channels. First,there is the trade channel. With growth stalled in the advanced economies,external demand is slowing and affecting the exports of EMEs. The second channel of transmission is capital flows. The third channel through which shocks are being transmitted is commodity prices. Abundant liquidity is adding pressures to commodity prices, he said. But what is common across EMEs is that their growth momentum will be interrupted if the current global problems are not resolved quickly,the RBI Governor said. RBI chief on the difference between 2008 & 2011 crisis In the years before the 2008 crisis,the world enjoyed a steady growth in advanced economies and accelerated growth in emerging economies. So a meltdown was checked with the full fire power of fiscal stimulus. Sadly,the policy space for stimulus is much less this time. The world responded in a coordinated way to check the 2008 crisis. With governments and central banks acting firmly. A similar perception of coordination is lacking today.
