🌎 2023: A Deep Dive into the World's Economic Outlook and What it Means for India
Will the world slow down India's growth in 2023? ReadOn!
Yesterday we took a deep dive into what 2023 and this decade holds for India. In case you missed it, here you go.
The data we analysed painted a rosy picture for the most part.
Our manufacturing sector is booming: manufacturing activity rose to a 13-month high in December.
The outlook for the services and agriculture sector also looks great due to the chances of increased exports.
So, this could truly be India’s decade.
The catch: India doesn’t exist in isolation.
We are a part of the global economy. So, if our trade partners are in trouble, we are in trouble.
It’s like the whole class getting punished for that one kid’s fault.
So, we spent a lot of time deciphering what trends are going to impact the global economy this year.
Buckle up, and ReadOn!
👻 Will Inflation Continue to Haunt Us?
Sadly, yes.
Different analysts have different views: some say inflation will get worse, others think it will ease.
What they all agree on is that inflation will continue to be a problem.
According to RBI projections, inflation in India will cool down a little: Consumer Price Index (CPI) inflation is set to be 5% in Q1 FY23-24 and 5.4% in Q2 FY23-24.
Now, this is within RBI’s tolerance limit of 2-6%, but it is still high enough to pinch pockets.
And pinched pockets are not good for the economy. Because they slow down demand.
And there is no point celebrating the increase in manufacturing capacity if there are no buyers for the manufactured goods.
Most of the countries we export to are also seeing high inflation.
Though this will marginally decline with rate hikes, our exports (and exchange rates) could be impacted due to higher than regular inflation in some of these countries.
One of our most important trade partners, the US (17.92% of total exports from April-Oct 2022), is hell-bent on reducing inflation levels.
That may sound like good news but it is not. Because as long as the Federal Reserve keeps raising interest rates, India will have to raise interest rates.
Because a rise in US interest rates snatches investments from Indian markets. To keep money at home we have to offer competitive interest rates.
This competition will impact infrastructure and capital expenditure investments because borrowing costs will become higher for companies.
This would in turn increase the probability of a recession.
🤔 Will We Be Hurt by Recession?
Mostly, yes.
According to most estimates, India is set to continue growing this year. But we can't say the same about the world.
According to the IMF's Chief: one-third of the world could face recession this year!
With recession come bankruptcies, unemployment, and companies cutting down costs.
So, even if India is projected to grow, our service exports, like IT services, could slow down. And when exports slow down, so does growth.
But there's a tiny glimmer of hope here…
😷 China's Reopening
The Good Thing About China Reopening: Companies and citizens of China may start looking to import from abroad, thereby increasing demand. This could save some countries from recession.
The Bad Thing About China Reopening: The reopening, if not managed properly (which we personally feel is a long shot) could also increase Covid cases. And, we don’t really have to tell you how bad things could get.
The early signs of another China-led havoc can be seen. Approximately 248 million people are assumed infected in the first 20 days of December in China!
Assuming China doesn't infect the world again - revenge shopping in China and renewed demand for housing could increase commodity prices across the world.
So, we're back to square one: which is rising inflation.
Or worse, we could see a more dreaded demon: stagflation (when growth halts but inflation continues to increase).
🤝🏻 End of Globalisation, Rise of Friend-shoring
Globalisation has been slowing down for a long time now.
Trade wars (and actual wars) are becoming more common.
The US is picking more fights with China now: like the recent restrictions imposed on the export of semiconductor chips made using American tools to China
It has also been taking Taiwan's side in the China-Taiwan conflict.
Now, whether or not this will lead to an outright battle between two of the world's biggest economies is uncertain.
But this has certainly strengthened the idea of onshoring and reshoring: bringing back manufacturing from foreign locations to home.
Seems like the whole world wants to be aatmanirbhar. So, is this bad news for India?
Nope. It isn't always possible to manufacture everything everywhere. Countries know this. They certainly want to break ties with China but not other countries that could take its place.
That's where friendshoring enters. Countries are choosing a few close allies who they can still trust for their manufacturing and import needs.
And it seems that the US, the world's largest importer, is keen on being friends with India.
So, it seems that beyond the fogs of recession and inflation, the outlook for India is still bright and sunny.
We may be set for the coming decade, but we'll have to survive in the next two years if a recession hits.
✏️ To sum it up…
India's growth in the short-term depends on whether or not the world is able to avoid a recession.
Do you think we'll be able to do that? Or is a recession inevitable?
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See you tomorrow :)
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