India and the Global Recession-Preparing for the uncertainty

In developing and emerging markets, per-capita incomes are expected to grow at a slower rate of around 2.8% over the next two years. In Sub-Sahara Africa, which accounts for 60% of the world's extreme poor, the growth rate is expected to be around 1.2%. This could cause the poverty rates to rise. The deteriorating global growth outlook has intensified the crisis facing development. Due to the high level of debt and the lack of investment, developing and emerging countries are expected to experience slow growth for the next couple of years. This will lead to the reversals in various development indicators such as education, health, and infrastructure.

While the growth of advanced economies is expected to decrease from 2.5% to 0.5% in 2023, which would mark the first recession since 1970. The United States is expected to grow at only 0.5% in 2023, which is 1.9 percentage points below its previous forecast. The euro area is also expected to shrink to zero percent, while China's growth rate is predicted to be 4.3%.

The lack of investment growth is a major concern for the global economy due to its negative effects on the growth of the overall economy. It can also prevent countries from achieving their climate-related goals. To boost investment growth, national policies should be tailored to the specific needs of their countries. Doing so would require the establishment of sound monetary and fiscal policies.

The world bank report also analyzed the situation of 37 small states, which have a population of less than 1.5 million. They experienced a deeper COVID-19 recession than other economies due to the prolonged tourism-related disruptions. In 2020, the economic output of these countries decreased by over 11%. Small states are typically hit hard by natural disasters that cause losses averaging 5% of their GDP annually. This can severely affect their economic development. These states can achieve long-term growth by improving their resilience to climate change and adopting policies that support their economic diversification. The report also calls on the international community to help them restore debt sustainability and support their efforts to adapt to climate change.

Development

The concept of cross-border mobility is a complex one that involves people from different backgrounds. It can be depicted in various ways such as a construction worker from a developing country moving to a more prosperous region, a nurse from a retirement home, and a Nobel Prize winner. Mobility has been supporting the social and economic progress of humanity since the first humans emerged from the Turkana Valley. Mobility is a vital component of the development process as it allows workers to move across different geographical areas and economic sectors. It can also help countries adapt to changes in the economy. Unfortunately, cross-border mobility can have social and economic consequences for individuals and communities. Most of the people who cross-border mobility involves are from developing countries like India. They make up a large portion of the world's population who are living outside their home countries.

Due to the various crises and trends that have been affecting the global economy, it is now more important than ever that the management of cross-border mobility takes into account the needs of all its participants. This is very important to ensure that the goals of the United Nations and the World Bank are achieved. The World Development Report is now taking a new look at the various issues related to migration. It is focused on developing a more holistic approach to addressing the needs of refugees and migrants. This new report aims to recognize the humanity of these individuals and the complexity of their destination.

The WDR aims to provide a comprehensive view of the various drivers of mobility and their impact on development. It also aims to strengthen the link between development and international protection. The World Bank will look into the various stakeholder groups that are involved in cross-border mobility to identify policy options that can address their needs. These include the private sector, development agencies, and the countries that are hosting migrants. It will also work with other organizations such as the UN and the refugee-hosting nations to deliver a better mobility system.

South Asia Region (SAR)

The economies of South Asia are expected to continue to be affected by the various factors that have been affecting the global economy, such as the conflict in Ukraine and the rising prices of food and energy. As a result, the region's central banks are being compelled to act to contain inflation. The effects of these developments on the hospitality, trade, and manufacturing sectors were felt in the SAR. As a result, household's real income was under pressure.

In India, which is one of the region's most important economies, the growth rate has been estimated to have been at 9.7 percent during the first six months of the 2022/23 fiscal year. This is due to the country's robust private consumption and investment growth. Unfortunately, the Reserve Bank of India had to increase its policy rate by 2.25 percentage points in May and December due to the rising inflation. In November 2019, India's goods trade deficit had increased to $24 billion, which is more than doubled from the previous year. The widening of the trade imbalance can be attributed to the country's imports of petroleum products and other commodities, but these all falls under the necessity of the nation. The uncertainty and the global economy's slowdown are expected to have a negative impact on the country's investment and export growth. However, the government's various measures to support the manufacturing industry are expected to help boost the country's growth rate.

The outlook for the global economy is still negative due to various factors, such as the invasion of Ukraine and the rising geopolitical tensions. However, it is still possible for countries to avoid experiencing crises due to their adequate policy buffers and macroeconomic management capabilities. For various economies, the projections are dependent on their ability to secure external funding and the implementation of policies to address their balance of payments issues. Other risks include a prolonged period of elevated inflation and financial sector stress.

Unfortunately, the rising prices in advanced economies are still expected to continue to affect the region's economies. As a result, additional increases in the policy rates of these countries could cause financial stress and increase the exchange rate pressures. Addressing the rising macroeconomic imbalances is a challenging task due to the increasing levels of human deprivation and slowing growth. the complexity of the environment can increase the risk that policy mistakes will result in undermining the country's economic activity. In 2022, the external financing needs of several SAR economies increased.

In developing countries, the current account deficits are expected to grow to around 7 percent of GDP in 2023. Short-term external debt has also increased in some nations. However, the rising interest rates and the potential repricing of debt by investors could increase the risk that countries could not secure adequate financing. This could cause capital outflows and increase the costs of financing.

Conclusion

In 2022, various challenges faced the global economy. After two years of suffering from the pandemic, the Covid-19 cases had started to recede, which was seen as a positive sign for the recovery of the economies. However, just a few months later, an unexpected global crisis emerged. This presented a threat that could derail the entire global economy. The invasion of Ukraine in February has caused the world to scramble to find ways to secure basic services. Due to the disruption of two major trade routes, the sanctions imposed on Russia have had a negative impact on the global supply chains.

Rising oil prices led to a spike in inflation. This resulted in a spillover effect on the Indian economy. In response, stock markets in the country declined, and the rupee lost value. The Reserve Bank of India also faced a difficult time deciding between maintaining a steady growth rate and addressing the rising inflation. The government decided to focus on controlling the rising prices. The various measures taken this year are expected to have a bearing on the coming year as well. As the government prepares to unveil the Union Budget for the next financial year, which begins in 2023, it will be important that the country's growth is maintained.

Although the various measures and policies that were introduced to address the global economy have started to improve the situation, the challenges that remain are still severe. For instance, the US and China are still expected to face a slowdown. If the two countries' economies slow down, it could impact India. The World Bank has identified three factors that contributed to the global economy's slowdown. These include the rise of interest rates, the conflict in Ukraine, and high inflation.India's growth is still expected to remain sluggish. In addition to external factors, the country's policymakers are still urged by various experts to keep a careful watch on the rising interest rates. The International Monetary Fund noted that the country should refrain from increasing its policy rates too aggressively. In response to the rising prices, major central banks across the world started to increase their interest rates. This was the biggest increase in the policy rates in over two decades. The rate hikes were carried out to contain the rising inflation.

Pic Courtsey-IDSA Gis Lab

(The views expressed are those of the author and do not represent views of CESCUBE.)