The US and the Eurozone are on the verge of a recession, but India is unlikely to feel the effects since its economy is “not that connected” to the rest of the world.
“Despite being a net energy importer, the Indian economy is far more independent of the global economy than we typically imagine given its high local demand. On the other hand, your firms have been able to preserve sound balance sheets, and you have sufficient foreign exchange reserves, “S&P’s managing director and chief economist, Paul F. Gruenwald, told reporters at this place.
He said that India is relatively independent of global markets since it was never completely integrated into the global economy, adding that a lot depends on how global fund flows behave if there is a recession in the US and Europe. Their inflation numbers continue to dodge the monetary actions by their central banks as the gap between the US core inflation target and the actual number is three times 6 percent.
The world’s largest economy is on the verge of recession, which is the result of an overheated economy because even though inflation has reached a four-decade high, the unemployment rate is so low at 3.7%, he claimed, making inflation and the US Fed’s ensuing measures the main threat to the US economy.
“As the output gap is still positive, but consumer and business moods are negative, our opinion is that there is a 50/50 likelihood that the US will experience a recession. Since the effects of the US Fed’s significant rate rises won’t be apparent until then, it will be clear either later this year or early next year whether this will be a gentle landing or not, “Gruenwald threw in.
The managing director said the Eurozone’s issue is more systemic and entrenched. It will take time for things to get back to normal because the crisis is a product of geopolitical problems (the war in Ukraine with Russia) and extremely high energy prices after the EU countries started to reduce their reliance on Russian gas in February. Yet again, at 6.5%, the unemployment rate in the EU is low.
Gruenwald said that the house perspective is less than a 50% risk for a Eurozone recession burdened by the Russia-Ukraine war and the ensuing energy security difficulties. If unemployment grows more severe, the continent will confront a crisis. It will take a couple of years to recover if it falls into a recession, unlike the US, which may heal much faster.
The central banks’ decision to combat inflation rather than restrict GDP has contributed to the recession in the US and Europe.
He emphasized that China’s slowdown, which he called the worst in decades, is a self-inflicted wound brought on by its zero-tolerance attitude regarding Covid.
He claims that China has never fallen so far short of its growth goals as it has this year (down from over 5 percent to under 3 percent or even less). The dismal outlook might change if there are any pleasant surprises at the communist party convention in November.
D K Joshi, the chief economist at Crisil Ratings, which is majority owned by S&P Global Ratings, responded to a question about whether the agency has a new assessment of Indian growth figures by saying that they are sticking with their most recent forecast, according to which they “expect the economy to grow at 7.3 percent this fiscal and slow down to 6.5 percent next fiscal, with more downside risks to both the numbers.” Gruenwald concurred with Joshi that despite these challenges, India will fare far better than the rest of the globe.