Here are some of the major points related to Nepal from a newly released Global Economic Prospects (GEP) 2012. The implications of the EU debt crisis and global economic downturn on the Nepalese economy is also discussed below. Here is an earlier post related to growth prospects of South Asia.
- Law and order problems, and persistent and extensive infrastructure bottlenecks (electrical shortages are reflected in widespread load-shedding and unreliable delivery), reduced real GDP growth to 3.5 percent in FY2010/2011 (ending June-2011) from 4.6 percent in FY2009/10.
- GDP growth rate is forecasted to be the lowest in the region. In 2012 and 2013, GDP growth rate is forecasted to be 3.5% and 3.8% respectively. Considering fiscal year (July 16 through July 15), GDP growth rate is forecasted to be 3.6% and 4% in FY 2012/13 and 2013/14 respectively.
- Exports to the EU and the US might slowdown. Exports to Europe (in particular textiles and clothing) are more sensitive to a decrease in consumer demand. It will further affect industrial output (mainly manufacturing ones).
- Current account balance was estimated to be –2.9% of GDP in 2010, which is forecasted to decline to –2.7% of GDP and –2.3% of GDP in 2012 and 2013 respectively. The strong earning from tourism sector and remittance inflows is offset by widening trade deficit, partly tied to deterioration in terms of trade and domestic supply-side conditions. Terms of trade losses are estimated at about 4.3 percent of GDP for Nepal (1.9 percent of GDP for the region in aggregate)—(estimated January through September 2011 terms of trade impacts relative to 2010).
- Remittance inflows might take a hit (a decline of around 0.5 to 1 percent of GDP in case of moderate and severe crisis respectively) depending on the economic condition in the Gulf, affecting current account and balance of payments, consumption expenditure and import of durables.
- Inflationary pressure might continue.The upswing in prices reflects high international food and fuel prices, and imported inflation from India (as Nepal‟s local currency is pegged to the Indian rupee). Sustained elevated inflationary pressures have also led to a rise in inflation expectations.
- Foreign assistance might get a hit if fiscal consolidation in high-income countries results in cuts to overseas development assistance.
- Fiscal space has diminished when compared to 2007 level.
- These on top of the domestic supply-side constraints will impede GDP growth, exports and industrial output.
- The slowdown in global commodity prices (energy, metals, raw materials, minerals, fertilizers, and agriculture) might be a relief. But, with tensions rising in the Middle East, energy prices are going up North recently. Also, the continued depreciation of Nepalese rupee against major currencies (except the Indian rupee) will put further strain on retail prices (via the high import prices channel). Meanwhile, slowdown in demand for Nepalese exports in the EU and the US might mean a stunted exports sector, provided that it also fails to boost market pie in the Indian and regional markets.
- Exposure (investment) to a sudden withdrawal of European bank assets is relatively small (almost without any risk or negligible).
|Macroeconomic condition, 2008-2013|
|Real Expenditure Growth|
|1. GDP at market prices||4.8||5.3||4.5||4||3.5||3.8|
|2. Private consumption||3.9||3.9||4.9||4.9||4.1||4.1|
|3. Government consumption||6.9||13.1||17.8||13.5||10.1||9.3|
|4. Fixed investment||4||6||5.6||0.3||-0.2||3.2|
|5. Exports, GNFS||-1.4||17.5||34.4||22.1||9.4||5|
|6. Imports, GNFS||4.3||13.9||18.6||13.5||8.1||6|
|Contribution to GDP Growth|
|1. Private consumption||3||3||3.7||3.7||3.1||3.2|
|2. Government consumption||0.6||1.2||1.8||1.5||1.3||1.2|
|3. Fixed investment||0.8||1.2||1.2||0.1||0||0.6|
|4. Net exports||-0.3||3||6.6||5.4||2.7||1.5|
|1. GDP at market prices||16.4||-6.2||17.8||5.3||4.1||6.1|
|2. Private consumption||14.8||-6.3||17.7||11.1||10.5||11.4|
|3. Exports, GNFS||17.4||-7.6||10.2||4.8||11.9||16.6|
|4. Imports, GNFS||19.6||-6.4||12.2||8.2||15.6||19.5|
|Share of GDP|
|1. Private consumption||76.6||75.5||75.8||80.5||85.6||90|
|2. Government consumption||10.3||11.2||12.1||13.7||15.5||17.2|
|3. Fixed investment||20.3||20.5||20.1||20.1||20.6||21.6|
|4. Change in stocks||9.2||9.5||8.1||7.3||6.7||6.2|
|5. Total investment||..||..||..||..||..||..|
|6. Exports, GNFS||16.1||17.7||21.3||24.8||28||31.1|
|7. Imports, GNFS||34.6||37.3||40.3||45.1||52.1||59.9|
|1. Nominal GDP (USD billions)||13||12.8||15.8||17.3||18.7||20.7|
|2. Population (millions)||28.8||29.3||29.9||30.4||31||31.5|
|3. GDP per capita, current USD||451.8||437.6||528.5||570||605.4||655.6|
|4. Real per capita GDP growth||4||2.4||2.6||1.7||1.8||2.4|
|5. USD Fx rate||64.9||76.6||74.6||75.4||75.4||73.7|
Source: Global Economic Prospects 2012, World Bank; *Forecast for 2011, 2012, 2013