Exchange rates and inflationary prospects in Asia

We are forecasting what might be called a global recession in 2009, since this is commonly defined as world growth (calculated at purchasing power parity weights) of less than 3 per cent per annum. However, relative to previous global downturns, a global expansion of 2.8 per cent in 2009 appears mild compared to growth of just 2.2 per cent in 2001, 1.5 per cent in 1991 and 0.9 per cent in 1982. The global figures are somewhat distorted by the increasing importance of the fast growing economies of China and India in the world aggregate. In 1982, these two economies accounted for just 4.6 per cent of world output, while this weight rose to 6.7 per cent in 1991, 11.4 per cent in 2001 and is expected to be about 17 per cent in 2009. Indeed, as we can see from figure 16, in our current forecast we expect China to become the world's largest economy in 2020, overtaking the US in size, measured in purchasing power parity terms. Excluding China and India, the world is expected to grow by just 1.7 per cent next year, as it did in the recession of 2001.