An expected global recession in the second half of FY23 is now top of the mind for business communities around the world. Just when the global economy was recovering from the pandemic, the Russian-Ukraine war led to further economic instability disrupting supply chains, increasing prices of all commodities including apparel and creating geopolitical tensions. And a new Covid surge in China with strict lockdowns has impacted global economy even further.
Growth decline a cause of concern
The IMF which works to achieve sustainable growth and prosperity for all its 190 member countries recently released its global economic outlook survey which has projected a 2022 global GDP growth to reach 3.2 per cent as compared to 6 per cent last year. Although this indicates a decline in growth rate by 46 per cent from 2021, it is set to further decline by 16 per cent to reach 2.7 per cent in 2023. Growth projection of advanced economies has seen a decline of 5.2 per cent last year to 2.4 per cent in 2022 and 1.1 per cent in 2023 which translates to a drop of 53.8 per cent in 2022 from 2021 and 54 per cent in 2023 from 2022.
With the strongest-ever tightening in history as governments withdraw Covid restrictions and raise interest rates to control persistent multi-decadal high inflation globally, a series of hikes in rates of various commodities has led to an economic slowdown for all countries. In the last year, Fed funds rate has seen the biggest change ever since 1981 in the ECB target rate since the Eurozone was created along with the largest tightening of global central bank policy since 1980.
Globally, things are not looking good and the light at the end of the tunnel is still rather dim. In 2023, slow growth will force a down-turn in the US if core inflation persists; Europe is going into a recession driven by an escalation in energy prices while China reels under a new Covid wave and delays the reopening of many segments.
Closer home, Sri Lanka’s monthly export in October 2022 also fell for the first time in seven months as global demand for industrial products led by the garment segment has sharply declined when global recession looms ahead.
Analysts hopeful about India
Almost all emerging markets and developing economies’ outlook are facing a post-pandemic downward slide and this is reflected in the Indian economy too. In October 2022, India’s exports of non-oil goods were at $25 billion which translates to -18 per cent lower than last year and 28 per cent lower than the highest monthly goods exports of $34.7 billion. Although the service sector exports sum up over 50 per cent of gross value added with the manufacturing sector contributing less than 20 per cent the disruptions in the global supply chain will significantly affect manufacturing industry much more than the general impact on the domestic economy. Experts say, exports are less than a fifth of the domestic economy, so while factoring in the reduced export figures, India’s GDP will continue within the fastest-growing emerging countries with a growth rate of 6.8 per cent in FY23.
Summing it up well is a recent World Bank report titled ‘Navigating the Storm’ which says that “India’s economy is relatively more insulated from global spillovers than other emerging markets. India is less exposed to international trade flows and relies on its large domestic market. India’s external position has also improved considerably over the last decade.” Analysts remain hopeful while the pull-down external economic environment will negatively affect India’s growth prospects, the present economy is better than the other emerging markets to weather the storm better and use global spill-overs to its advantage.