International | Apr 10 2006
A meeting of Asian and European nations in Vienna over the weekend concluded with an optimistic outlook for global growth, with the consensus for world GDP to increase by 4.5% this year after last year’s 4.3% rise.
While such an outcome would represent very strong performance, it doesn’t come without potential risks as the Japanese contingent at the meeting cautioned growth may be under threat from higher global interest rates.
In the view of the Japanese the impact of further increases in official rates in the EU, the US and Japan itself could be felt hardest in developing Asia, as those countries would then find it more difficult to attract investment inflows as higher rates on offer in more developed markets would make them relatively more attractive.
As the Japanese note, over the last few years the low level of interest rates globally has made it easy for companies in developing nations to obtain investment fund as investors have been forced to look beyond traditional markets such as Japan and Europe in an attempt to boost returns. But a shift to higher rates in these major markets, as is now occurring, could see a sharp reduction in the availability of funds for companies in emerging markets, so impacting on growth in those countries.
The developing Asia region, which includes India and China, has been a growth engine in recent years, recording an increase in GDP of 7.4% in 2005.
