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Focus Story

        Global                                                                                                                 production snarls due to   export slowdown, which      has depreciated by over 7.0   we navigate these challenges,


                                                                                                                                                                                                                  with the government
                                                                                                                                                                                      per cent in the fiscal so far
                                                                                                                               intermittent lockdowns. This
                                                                                                                                                          poses downside risks to
                                                                                                                                                                                                                  expected to continue with
                                                                                                                                                                                      buffeted by headwinds from
                                                                                                                               has prompted the World Bank
                                                                                                                                                          India’s growth prospects for
                                                                                                                                                          the current year. While the
                                                                                                                               to cut its growth forecast for
                                                                                                                                                                                      tighter global financial
                                                                                                                                                                                                                  the bulk of the heavy lifting,
        Challenges                                                                                                             current year from the      price from their recent highs   sentiment, and a        infrastructure, as well as
                                                                                                                                                                                      conditions, risk-off
                                                                                                                                                                                                                  mainly in terms of
                                                                                                                                                          coming off the crude oil
                                                                                                                               China to 2.8 per cent for the
                                                                                                                                                          will have a sobering impact
                                                                                                                                                                                      strengthening US dollar.
                                                                                                                               previously forecasted 5.0 per
                                                                                                                                                                                                                  spend on welfare measures,
                                                                                                                                                          on India’s import bill, a
                                                                                                                               cent growth rate.
                                                                                                                                                                                      A depreciating rupee raises
                                                                                                                                                                                                                  to support the rural and
                                                                                                                                                          greater slowdown in exports
                                                                                                                                                                                                                  informal economy.
                                                                                                                                                                                      risks of imported inflation,
                                                                                                                               Amidst this heightened global
                                                                                                                                                                                      offsetting some gains from
                                                                                                                                                          due to tepid external
        to the Indian                                                                                                          uncertainty, India remains in a   demand vis-à-vis imports, is   the recent fall in   A DECLINE IN
                                                                                                                               sweet spot with growth rates
                                                                                                                                                          expected to exert a widening
                                                                                                                                                                                      international commodity
                                                                                                                                                                                      prices. The RBI’s
                                                                                                                               expected to be in the order of
                                                                                                                                                          pressure on the current
                                                                                                                                                                                                                   GLOBAL GROWTH IS
                                                                                                                                                                                      interventions in forex
                                                                                                                                                          account deficit this fiscal.
                                                                                                                               7 per cent+ in the current
                                                                                                                                                                                      markets to limit volatility in
                                                                                                                               year. That said, we are
                                                                                                                                                                                                                   ALREADY
                                                                                                                                                                                                                   REFLECTING IN
                                                                                                                               certainly not decoupled from
                                                                                                                                                                                      the rupee, have led to the
                                                                                                                                                          Furthermore, volatility in
        Economy                                                                                                                the global economic turmoil.   global financial conditions,   drawdown of reserves.   EXPORT SLOWDOWN,
                                                                                                                                                          across assets (equity, debt,
                                                                                                                                                                                                                   WHICH POSES
                                                                                                                                                                                      Nevertheless, even as
                                                                                                                                                          rates), is showing its effect
                                                                                                                               The factors underlined above
                                                                                                                                                                                                                   DOWNSIDE RISKS TO
                                                                                                                                                          domestically too, with equity
                                                                                                                                                                                      multiple global risks are
                                                                                                                               pose spillover risks to India’s
                                                                                                                                                                                                                   INDIA’S GROWTH
                                                                                                                                                                                      hovering on the horizon,
                                                                                                                                                          indices sliding, yields rising,
                                                                                                                               macros: slowdown in global
                                                                                                                                                          and rupee falling. The rupee
                                                                                                                                                                                      much will depend on how
                                                                                                                               growth is already reflecting in
        P   rospects for global    commodity price shock,
                                   aggressive monetary
            growth this year and next
        have progressively been    tightening by the US Fed and
        revised downwards. The     other large central banks,   UNSURPRISINGLY,
        International Monetary Fund   spiralling energy prices in   THE INCOMING
        (IMF) expects global GDP   Europe, disruptions caused by   DATA FROM THE
        growth at 3.2 per cent for   China’s zero-Covid strategy,   KEY GLOBAL
        2022 and 2.7 per cent for   have dealt one body blow    ECONOMIES DOES
        2023 (WEO October 2022),   after another on global      NOT LOOK VERY
        revising down the projections   economic outlook. The   PROMISING
        for 2023 by 20 percentage   prognosis for the next year is
        points compared to the July   not too good either, with
        2022 Outlook. Starting with   recession/stagflation-like risks   Unsurprisingly, the incoming   a rise in US Treasury yields,
        the Russia-Ukraine crisis, the   strengthening.       data from the key global    sliding global equity markets,
                                                              economies does not look     and depreciating currencies
                                                              very promising. The world’s   across advanced and
                    Global growth is slowing down             largest economy – the US is   emerging economies.
                                           2022    2023       facing the prospects of a
         Country/Region             2021                      stagflation, described as a   Our once fancied neighbour
                                         (Forecast) (Forecast)  scenario of falling growth   China too finds itself in
         United States               5.7   1.6      1.0       along with multi-decadal high   economic dire straits. Its
         Euro Area                   5.2   3.1      0.5       inflation levels. The US Federal   fanatical zero-covid policy has
         Japan                       1.7   1.7      1.6       Reserve has raised the key   led to prolonged lockdowns
         United Kingdom              7.4   3.6      0.3       policy rates by a cumulative   in the biggest cities, ports and
                                                              375 basis points this year so
                                                                                          manufacturing hubs. It grew
         Emerging and Developing Economies 6.6  3.7  3.7      far in a bid to tame inflation.   by a paltry 0.4 per cent on
         Brazil                      4.6   2.8      1.0       Other major central banks,   annual basis in the April-June
         China                       8.1   3.2      4.4       including the European      quarter before recouping to
         India                       8.7   6.8      6.1       Central Bank, have adopted a   3.9 per cent in the
         World                       6.0   3.2      2.7       similar hawkish stance. This   subsequent quarter, due to a
                                                              has caused volatility in global   massive collapse in its real
         Source: IMF World Economic Outlook, October 2022     financial conditions, including   estate sector apart from
        06   ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                                                                                                                               ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  07
                                                                                                                                                                                                                  QUARTERLY JOURNAL OF ECONOMICS
             QUARTERLY JOURNAL OF ECONOMICS
             DECEMBER 2022                                                                                                                                                                                                  DECEMBER 2022
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