'Not so coupled' Indian economy may not see recession: S&P Global

22 Sep '22

3 min read

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Despite the euro zone and the United States headed toward recession, India is unlikely to be affected given the ‘not so coupled’ nature of its economy with the global economy, according to global rating agency S&P, which recently termed the Chinese slowdown as ‘the worst in decades’ and ‘a self-inflicted pain’ arising out of its zero tolerance policy towards COVID.

''Indian economy is a lot decoupled from the global economy than we normally think of, given its large domestic demand, even though you (India) are a net importer of energy. But you have enough forex reserves on one hand and your companies have managed to maintain healthy balance sheets,'' S&P global chief economist and managing director Paul F Gruenwald told reporters in Mumbai.

In fact, India was never coupled fully with the global economy and so is relatively independent of global markets, he said, adding that a lot depends on how global fund flows behave if there is a recession in the US and Europe.

China has never missed its growth targets as badly as this year. The communist party congress in November may throw in some positive surprises, in which case the negative forecast may reverse, he said.

Inflation and the resultant measures by the US Federal Reserve are the primary threats to the US economy, he said.

''Our house view is of a 50-50 chance of recession in the US as the output gap is still positive but the consumer and business sentiment is negative. Whether this will be a soft-landing or not, it will be known either later this year or early next year as the impact of the massive rate hikes by the US Fed will be known only by then,'' Gruenwald was quoted as saying by a news agency.

The problem in euro zone is more entrenched and structural and it will take time to recover as the crisis is the result of the geopolitical issues and the sky-high energy prices after the European Union member nations began to lower their dependence on gas from the Russia since February, he said.

But both the EU and US joblessness rates are low, he noted.

The continent will face the crisis if joblessness becomes more pronounced, Gruenwald said, adding, the house view is less than a 50 per cent chance for a recession in the euro zone, which will take a couple of years to recover if it falls into a recession unlike the United States, which may recover much faster.

The US and European recession depends on the central banks ignoring slowing growth and opting to fight inflation instead, he added.

Fibre2Fashion News Desk (DS)

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