Opinion Express View on global downturn: Slow and slower

Data released last week showed that the German economy has slid into a recession. GDP fell by 0.3 per cent in the January-March quarter, after a drop of 0.5 per cent in the October-December quarter of the last year, as households cut back on spending due to high inflation and aggressive monetary policy tightening. Considering that the German economy is the largest in Europe, some analysts are now estimating that the entire Euro region slowed down significantly during this period, perhaps just barely managing to escape a recession. This grim economic picture is not just limited to the Euro zone.

With the US economy seen to be losing steam, some analysts are expecting it to tip into a recession later this year. The minutes of the last US Federal Reserve meeting, released a few days ago, revealed that as economic risks had increased, the Fed officials were “less certain” about the need to raise interest rates further. Fed Chairman Jerome Powell has, in fact, previously acknowledged the possibility of the US entering a mild recession. The UK, however, might just avoid entering into a recession this year. The International Monetary Fund, which had earlier projected the economy to contract by 0.3 per cent, now expects it to grow at 0.4 per cent in 2023, driven by falling energy prices, and healthy demand, though with inflation being sticky, interest rates are likely to remain high. Then there are concerns that China’s economic recovery is losing momentum with some recent data coming in considerably below expectations. Some analysts have already begun to factor in additional support by the authorities. With the Chinese economy sputtering, and the global economic outlook weakening, Singapore, a major entrepot of trade and capital flows, contracted in the first quarter (on a quarter-on-quarter seasonally adjusted basis).

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The effects of a slowing global economy on India are already evident. After growing by 17 per cent in the first half of 2022-23 (April-September), the country’s merchandise exports plummeted in the second half of the year (October-March), contracting by 3.7 per cent, with global demand coming under pressure. In April 2023, goods exports contracted further by 12.7 per cent, with most of the non-food product categories witnessing declines. With global demand likely to remain under pressure, merchandise exports are unlikely to provide a fillip to the Indian economy in the near term.