As the world moves towards the end of 2022 in the middle of the Ukraine war, fear of global recession is intensifying with each passing day. Global agencies like World Bank, International Monetary Fund etc are slashing the economic growth of several nations amid high inflation and record rate hikes.
Citing the Chinese slowdown due to strict Covid-19 lockdown restrictions, the World Bank also slashed the economic outlook for East Asia and the Pacific in 2022.
The East Asia and Pacific region, which includes China, is likely to slow down to 3.2 per cent from its 5.0 per cent forecast in April, the World Bank said. The international body, however, said that the pace of expansion will pick up next year.
The bank said that the Chinese slowdown has disrupted industrial production, domestic sales and exports. China constitutes 86 per cent of the 23-country region's economic output and was estimated to grow 2.8 per cent this year from the previous forecast of 5.0 per cent.
Also, the Organisation for Economic Cooperation and Development (OECD) on Monday said that the global economy is going to take a bigger hit than previously forecast next year.
The Paris-based intergovernmental organisation in a bleak report named "paying the price of war", stated that the Ukrainian conflict triggered inflationary pressure when the cost of living was already increasing rapidly.
It said the global economy is still dealing with the impact of the deadly Covid-19 pandemic and growth has also been hit by high-interest rates as central banks struggle to tame inflation.
In India, the economic activity has rejuvenated further in September 2022 in comparison to August 2022 due to the onset of the festive season, said Saket Dalmia, President, PHD Chamber of Commerce and Industry.
However, even as economic activities in India have seen sharp increases in terms of growth rate, the recovery to above pre-Covid levels is incomplete and India is unlikely to be immune from the global slowdown, said the Kotak Mahindra Bank in a recent report.
"The pace of economic activity is gaining momentum on the back of the onset of the festive season supplemented by the various structural reforms undertaken by the Government during the last 2 years," said Dalmia.
Recently, many international agencies have revised India's gross domestic product (GDP) growth forecast due to higher inflation and rising policy interest rates.
World Bank and India:
On 06 October, the World Bank curtailed its growth forecast for India for 2022-23 to 6.5 per cent year-on-year from a previous estimate of 7.5 per cent, a drop of one per cent from its previous June 2022 projections. The world bank cited the deteriorating international environment for this downgrade.
International Monetary Fund (IMF):
Another global economic body — IMF also slashed its projection of India's economic growth in 2022 to 6.1 per cent. However, its growth is estimated to be the fastest among major economies.
Behind India, were China (4.4 per cent), Saudi Arabia (3.7 per cent), and Nigeria (3 per cent).
In its annual World Economic Outlook report, the IMF said that the United States (US) is likely to grow at 1 per cent while Russia, Italy, and Germany were forecast to suffer a decline in economic growth, the IMF said.
"The global economy continues to face steep challenges, shaped by the lingering effects of three powerful forces: the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China," it said.
S&P Global Ratings:
Earlier, American credit rating agency, S&P Global Ratings estimated India's economic growth at 7.3 per cent in the current fiscal with downside risks. In its economic outlook for the Asia Pacific, the agency said that we have retained our growth outlook for India at 7.3 per cent for the fiscal year 2022-2023 and 6.5 per cent for the next fiscal year.
It also mentioned that inflation is likely to remain above the Reserve Bank of India's (RBI's) upper tolerance threshold of 6 per cent till December 2022. Indian economic growth in 2023 will get support from domestic demand recovery after the Covid-19 pandemic, the report said.
Asian Development Bank (ADB):
Asian Development Bank (ADB) downgraded India's economic growth projection for 2022-23 to 7 per cent from 7.2 per cent. According to the bank, the step came due to the higher-than-expected inflation in India and monetary tightening by the Reserve Bank of India.
The ADB said in a report that the Indian economy grew 13.5 per cent year-on-year (YoY) in the first quarter of 2022-23, Witnessing strong growth in services.
Another rating agency Fitch also slashed India’s GDP growth forecast to 7 per cent in the financial year 2023 compared with 7.8 per cent in its earlier projection. The move came on the back of a global slowdown and tighter monetary policy. Apart from that the agency also trimmed the FY24 estimates to 6.7 per cent against 7.4 per cent earlier.
Meanwhile, World Bank President David Malpass has said that the world economy is dangerously close to a recession. He added that there must be targeted assistance for the poor.
The World Bank chief informed that the growth rate has been reduced from the 2023 growth forecast from 3 per cent to 1.9 per cent for global growth.
“That’s dangerously close to a world recession and a world recession could happen under certain circumstances," said Malpass.
Malpass also noted that the buildup of debt for developing countries is primarily due to high-interest rates as their currencies continue to weaken.