The global economy seems to be changing at a faster rate than ever before. Some of the changes like rapid growth in China and India and their growing economic freedom proved to be at a faster pace, when compared with the other countries. These changes resulted mainly due to high oil prices and global imbalances. The article deals with world economy and its growth prospects.

The global economy is projected to continue with its growth momentum in 2006. The global growth prospects are, however, vulnerable to the growing concerns relating to high oil prices and global imbalances. Oil prices continue to remain high and volatile. After easing from Katrina-induced record high, crude oil prices rebounded in early 2006 on account of geo-political uncertainties. Persistence of global financial imbalances continues to be another key risk to global growth. The most visible aspect of the global imbalances has been the growing deficit in the current account of the balance of payments of the US and correspondingly large surpluses in the external accounts of other countries, including oil exporters such as Russia, Saudi Arabia, Japan and the countries of emerging Asia, and most particularly China.

The US current account deficit widened from 5.7% of Gross Domestic Product (GDP) in 2004 to 6.4% in 2005 and is estimated to reach 7.0% by 2007, according to the Organization of Economic Cooperation and Development (OECD). A disorderly adjustment of the financial imbalances may prove to be costly and disruptive to global growth. More recently, avian flu has become another potential risk to the global economy, particularly to the Asian region. The World Bank estimates that a year-long pandemic could cost the world economy US$800 bn (equivalent to 2.0% of global GDP).

Treasury Management Magazine, Global Economy, Gross Domestic Product, GDP, Global Financial Services, Organization of Economic Cooperation and Development, OECD, Asian Development Bank, ADB, Financial Markets, Business Environment, State Bank of India, SBI, World Economy, Foreign Exchange Reserves, Risk Management.