Economic Recession: Even as analysts are fearing of the US going into a recession in the next one year and the impact cascading globally, experts here believe that the impact on India will be moderate and short-term. They say that the recession will pull down the prices of commodities globally, which can help the country sail through tough economic times.
On the likelihood of a recession, US-based brokerage firm Goldman Sachs in its report has said it sees a 30 per cent probability of US entering a recession in the next year and a 25 per cent conditional probability in the second year if one is avoided in the first. Bank of America Securities also sees a roughly 40 per cent chance of a US recession next year, with inflation remaining persistently high.
The impact of a US recession on India will depend on the magnitude of the recession; how big the recession is, Crisil Chief Economist D K Joshi told news18.com. “As of now, the US recession is likely to be a shallow one. It can slow down India’s exports but will also lower commodity prices globally which is positive. So, for now, the recession is likely to be shallow and its impact will be moderate on India.”
Japanese brokerage firm Nomura Holdings has also said there are increasing signs that the world economy is entering a “synchronised growth slowdown”, meaning countries can no longer rely on a rebound in exports for growth and have also “prompted us to forecast multiple recessions”.
Bank of Baroda Chief Economist Madan Sabnavis told news18.com that the overall impact of the recession on India will not be significant, as, among other factors, global commodity prices will also fall, which is positive. “India’s exports will, however, be affected negatively due to heavy dependence on the EU and the US as export markets, and the global trade will slow.”
India might see a slowdown (slow growth) for some time but not a recession (negative growth) for now, Sabnavis said adding that the country’s domestic economic factors are positive that can insulate India from any major negative impact of a global adverse economic event.
On the fear of the recession, crude oil has already fallen to its 12-week level. Brent futures for the September delivery on Wednesday fell $2.08, or 2.0 per cent, to settle at $100.69 a barrel. Other commodity prices have also started cooling off, as global nickel prices recently declined 50.2 per cent from its high of 2022, aluminium fell 36.4 per cent lower than its high seen this year so far.
Independent market analyst Ambareesh Baliga said India is majorly a domestic consumption economy, and as long as internal economic factors are positive, there won’t be any significant negative impact of a US recession in India.
“There will be a short-term adverse effect on exports in India, apart from a sentimental impact on the Indian economy and the markets,” he said.
Last month, the US Federal Reserve raised its key interest rate by 75 basis points (bps), which is the highest since 1994. It comes as the inflation rate in the US is hovering at a 40-year high of 8.6 per cent, against the central bank’s target of two per cent.
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