What is Global Recession why is it in the news?
A Global Recession, according to the International Monetary Fund(IMF) and the World Bank(WB), is defined as a yearly decline in the real global GDP per person that is accompanied by a significant decline in a number of other economic activity indicators, such as industrial production, trade, capital flows, oil consumption, and unemployment.
Growth Projections- Leading to Global Recession
The Reserve Bank of India struck a sombre tone in its December “State of the Economy” update, noting that the balance of risks is shifting in favour of “a darkening global outlook” and that emerging market economies (EMEs) appear to be “more vulnerable,” even though recent data indicate that global inflation may have peaked.
- Global Recession, Given this situation, the prediction that global growth will likely average about 3% in 2022 looks like an impressive accomplishment, especially considering how heavily the cards were stacked against it.
- The year saw the strongest US dollar in 20 years, the highest global inflation in 50 years, the most aggressive monetary tightening cycle in almost 40 years, and the slowest Chinese GDP in more than 45 years.
- The International Monetary Fund -: projects a slowdown in global growth from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023, the worst growth trajectory since 2001 (apart from the global financial crisis and the severe pandemic phase).
External circumstance – Causing Global Recession
Despite a little easing in global food, energy, and other commodity prices over the past few months, inflation is still strong and widespread. The IMF predicts that global inflation will decrease from 8.8% in 2022 to 6.5% in 2023 to 4.1% by 2024, which is still high by most standards.
Global Recession (2023): How India will avoid its Impact ?
The Indian economy is expected to grow quickly in the near future thanks to local factors, some of which are reflected in the rosy trends in high frequency indicators. Equity markets reached fresh highs in November as a result of a recovery in portfolio flows to India.
- Due to a decline in vegetable costs – The headline consumer-level inflation rate inched down to 5.9% in November.
- Double balance sheet issue– :High levels of corporate debt and banks’ burdened books with bad loans—seems to be improving.
- Corporate debt-to-GDP ratio at its lowest point in almost 15 years, there has been significant deleveraging over the past five years, and the bank books have mostly shed the residual bad loans.
- Beginning of an upturn in the capex cycle – Which may help to restart India’s growth momentum, is being heralded by waning input cost constraints, soaring corporate sales, and an increase in expenditures in fixed assets.
- Production Linked Incentive Scheme – Although the benefits are skewed in favour of bigger enterprises, the PLI system is boosting manufacturing. New investments are anticipated in battery technology, electric vehicles, and renewable energy.
- Freeing up significant space in low-skilled, unskilled labor-intensive manufacturing– India has a chance to fill some of this void, the China-plus-one strategy used by most multinational corporations may present an opportunity.
- Business sector has continued to recover, as seen by the Center’s strong direct tax and GST collections. The states have also seen some improvement in their consolidated deficits and net market borrowings.
- Agriculture – According to the RBI, the rabi prognosis indicates favorable prospects for wheat output with higher support prices, acceptable reservoir levels, and climatic factors supporting increased
India Adversely Impacted by Global Recession (2023)
There are still many threats in the outside environment. As the conflict in Ukraine continues, the European Union, India’s largest export market, is at risk of an energy-related slowdown.A pause in the Fed’s rate hikes is not probable until well into the second half of the year as the US struggles with declining inflation pressure.
Managing inflation expectations is difficult, Ultimately Leading to a Global Recession (2023)
Considering that, despite raising its benchmark lending rate by 225 basis points since May of this year, the RBI has lagged in addressing prices.
- Initial inflationary pressure was delivered by successive supply shocks, as their impact waned, “a revenge rebound in spending and especially a swing from goods to contact-intensive services is generalising price pressures and making them persistent
- Imported Energy – : At 4% of its GDP, India is heavily dependent on imported energy, which presents problems for its balance of payments. For FY23, a current account deficit of substantially over 3% is anticipated. ,
- Excess of Labor in Rural Area –Despite the robust farm output, rural salaries decreased for the ninth consecutive month in September, indicating ongoing hardship in the hinterland. This suggests that there is still an excess of labour in rural areas, which may affect the dynamics of the labour market and lower total household spending. Rural communities’ substantially greater inflation is further reducing expenditure there.