CNBCTV18 - Even before the pandemic's onset in early 2020, the global economic climate was erratic. The world's two largest economies, the US and China, were reeling from the effects of their ongoing trade war. COVID-19 only added fuel to this already raging fire. In a few months, the world slipped into a never before seen slowdown. Read more
In the aftermath of COVID-19, governments worldwide adopted varying approaches to spark their economies. For the most part, there were one of the two approaches followed - Keynesian pproach or Hayek's approach.
The Keynesian approach required governments to incur considerable amount of public spending in the belief that it will kickstart consumption. In simple terms, for every dollar of government spending, the corresponding output was expected to be higher than one dollar.
Meanwhile, Hayek's approach called for minimal government interference. Rather, market forces were expected to better capitalise an economy.
The US went with the Keynesian philosophy, where the government, among other things, handed out sizeable stimulus cheques to its citizens. However, the stark outcome has been inflation levels that are at 40-year high, a trend that has firmly head it's ground even through October 2022.
On the other hand, the UK quickly voted out the Prime Minister who was in favour of greater government intervention by way of massive tax cuts. The current administration has reversed almost all tax cuts and have instead implemented tax hikes.
India, however, seems to have tread a middle path. For 2023, the IMF has forecast India's economy as being on track to register 6.1% growth. Although this is a strong growth forecast, this was a downward revision on the back of less favourable external conditions and brisk policy tightening. Infact prompt intervention by central government has yielded positive outcomes in the past too.
Another reason why US and Europe are not in a better place right now are the layoffs that has steadily rising in their tech sector. Elon Musk led Twitter has laid off an estimated 66% of its workforce or about 5000 workers, in what seemed a restructuring exercise following a takeover.
Following that, several other tech conglomerates have also announced massive layoffs - from Meta to Amazon. This is a rather confusing trend, because only one year ago unicorns were being birthed at a furious pace.
Tech conglomerates in China have felt the heat, too. Both tencent and Alibaba reported significant declines in revenue. Tencent registered a 50% drop in profits, while Alibaba witnessed a similar 50% fall in net income. Job losses, therefore, has been an obvious outcome.
Will India face recession? Indian economy is 'not overheating' unlike that of the US. A chief economist at Nomura stated, "We haven't seen demand fully recovered in many sectors, so we are seeing inflationary pressures despite their being, on aggregate, a slack in the economy."
India's economy is estimated to have recorded double digit growth during Q1 of FY 2022-23. Real GDP growth rates were in 13 to 16.2% range.
The Indian equity market meanwhile has witnessed over 5% gains consecutively over October and November, 2022. Foreign Institutional Investments totalled ₹36,000 crore in November alone. Between July 2022 and now, an estimated Rs 90,000 crore has been invested in India equity market.
In terms of sectors, the service sectors delivered an impressive 21.6% growth on the back of increased demand for IT services exports. The capital goods sector is also expected to perform well on account of the government's increased CAPEX spending.
The agriculture sector is on the firm footing too. Agricultural exports, in particular, grew by 19.92% registering an aggregate value of $50.21 billion.
From manufacturing standpoint, the consumer electronics and automobile industries are poised for strong growth. Appliances and consumer electronics are on the track to clock $21.18 billion by 2025. These strong performances across sectors have sent the Sensex soaring; it touched an all time high of 63,583.07 earlier in December 2022.
Substantiating this rationale further is a Bloomberg survey, one that was even cited by India's Finance minister Nirmala Sitharaman in Parliament. This survey indicated that there was 'zero probability' of India finding itself amid a recession in the coming year.
Additionally, despite the Indian rupee falling to historic lows against the US dollar, a recession has been ruled out. Earlier in December 2022, RBI governor Shaktikanta Das stated, "The Indian economy remains resilient and the country is seen as bright spot in the gloomy world."
On a broader level, there is a 20-25% possibility of Asian economies finding themselves amid a recession. The US, on its part, is faced with a significantly higher 40% risk of experiencing a recession in 2023. Most economies in Europe has been negatively impacted by the Russia-Ukraine situation. There is a 55% possibility of a Eurozone recession.
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