Though the US and the euro zone are headed for recession, global rating agency S&P said on Tuesday that India was unlikely to suffer the impact given its economy’s “not-so-strong coupling” to the global economy.
“The Indian economy is much more decoupled from the global economy than we usually think due to its large domestic demand, despite you (India) being a net importer of energy. But on the one hand you have enough foreign exchange reserves and your companies have managed to maintain healthy balance sheets,” Paul F. Gruenwald, S&P’s chief global economist and chief executive officer, told reporters here.
Indeed, India has never been fully coupled to the global economy and thus relatively independent of global markets, he said, adding that much depends on how global money flows behave when the US and Europe hit a recession. Their inflation figures continue to dodge monetary policy action from their central banks as the gap between the US core inflation target and the actual figure is three times 6 percent.
He cited inflation and resulting Federal Reserve policies as the main threat to the US economy, saying the world’s largest economy was headed for a recession that was the result of an overheated economy because even after inflation hit a four -Have reached decade high , unemployment rate is as low as 3.7 percent.
“Our house view is a 50/50 chance of a US recession as the output gap is still positive but consumer and business sentiment is negative. Whether or not this will be a soft landing remains to be seen later this year or early next year, as the impact of the Fed’s massive rate hikes will not be known until then,” added Gruenwald.
Regarding the eurozone, the chief executive said the problem is more entrenched and structural. It will take time to recover as the crisis is the result of geopolitical issues (Russia-Ukraine war) and sky-high energy prices after EU nations started reducing their dependence on gas from Russia since February. But here, too, the unemployment rate in the EU is low at 6.5 percent.
The continent will face the crisis when unemployment becomes more pronounced, Gruenwald said, adding the House view was less than a 50 percent chance of a eurozone recession brought on by and resulting from the Russia-Ukraine war resulting energy security will be charged expenditure. It will take a few years to recover if it hits a recession, unlike the US, which could recover much faster.
The recession in the US and Europe hinges on central banks ignoring the slowdown in growth and fighting inflation instead.
Describing the Chinese slowdown as the worst in decades, he stressed that this is a self-inflicted pain stemming from its zero-tolerance policy towards Covid.
According to him, never before has China missed its growth target by as much as this year (from over 5 percent to under 3 percent or even less). The Communist Party Congress in November could provide some upside surprises, in which case the negative outlook could reverse.
When asked in the face of all these global headwinds whether the agency had a fresh take on India’s growth numbers, chief economist DK Joshi of Crisil Ratings (which is majority-owned by S&P Global Ratings) told PTI that they stand by their latest forecast , in which they “expect the economy to grow 7.3 percent this fiscal year and slow to 6.5 percent next fiscal year, with more downside risks to both numbers.” Alongside Joshi, Gruenwald said despite these headwinds, India will fare much better than the rest of the world.
(Except for the headline, this story was not edited by NDTV staff and was published by a syndicated feed.)