Sunday, July 14, 2024
HomeOpinionsGlobal economic forecast: Facing the tough time ahead

Global economic forecast: Facing the tough time ahead

Also Read

World Bank in their recent January 2023 press release predicted ‘Sharp, Long-lasting Slowdown to Hit Developing Countries Hard” and “2023 global growth to slow to 1.7% from 3% expected six months ago” Global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine, according to the World Bank’s latest Global Economic Prospects report.

“The global economy is projected to grow by 1.7% in 2023 and 2.7% in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95% of advanced economies and nearly 70% of emerging market and developing economies.” Over the next two years, per-capita income growth in emerging market and developing economies is projected to average 2.8%- a full percentage point lower than 2010-2019 average.

In Sub-Saharan Africa—which accounts for about 60% of the world’s extreme poor—growth in per capita income over 2023-24 is expected to average just 1.2%, a rate that could cause poverty rates to rise, not fall. “The crisis facing development is intensifying as the global growth outlook deteriorates,” said World Bank Group President David Malpass.

“Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change.”

Excluding China, growth in emerging market and developing economies is expected to decelerate from 3.8% in 2022 to 2.7% in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.”

“By the end of 2024, GDP levels in emerging and developing economies will roughly 6% below levels expected before pandemic. Although global inflation is expected to moderate, it will remain above pre-pandemic levels”. India growth is illustrated as per the chart here below.

Real GDP growth, at constant market price  8.7  6.9  6.6
Private Consumption    7.9  9.4  6.7
Government Consumption    2.6  4.1  6.7
Gross Fixed Capita Formation    15.8  9.5  5.1
Exports, Goods and Services    24.3  10.4  9.0
Imports, Goods and Services    35.5  15.4  10.2
Real GDP Growth and Constant Factor Services    8.1  6.6  6.4

(Source: National Statistics Office and World Bank Forecast FY: 22-23 and FY: 23-24)

The world Bank predicts “emerging market and developing economies is expected to decelerate from 3.8% in 2022 to 2.7% in 2023, and “By the end of 2024, GDP levels in emerging and developing economies will roughly 6% below levels expected before pandemic” which may affect Indian economy also and the worst sufferers will be those coming under the category of MSME sector for the reason that  the regulatory policies adopted by the Government and RBI under their Resolution Framework – 2.0: Resolution of Covid-19 related stress of Micro, Small and Medium Enterprises (MSMEs) are going to come to end by 31st March 2023 when the repayment of loans after the moratorium period will commence from 1st of April 2023 onwards.

The pertinent question is, are the industry and commerce sector particularly MSMEs have come out of their liquidity crisis to deal with their financial commitments specifically with regard to their bank loans?

Whereas the large industries have the resilient power to tide over the crisis, it is the MSME sector that is facing the dilemma regarding their financial commitments. The pandemic has exposed the vulnerability of MSME sector and the weaker sections of the society due to utter inadequacy of policy framework to support the vulnerable sections on account of pandemic shocks and uncertain business environment. Unpredictability of future and its gory effects have been exposed.

Besides, the devastating effect of climate change creating natural calamities of great magnitude, worsening geo political situation especially ranging hostilities between Russia and Ukraine and the ongoing global power crisis, spreading terrorisms in many parts of the world and deteriorating economic situations in many countries aggravate the already worsening global financial and business environment.

The severe impact of pandemic created unsustainable scarcity of demand and supply because of which cash flow came to a standstill. SME struggled to retain their work force on account of lack of financial resources and delayed payment. Even they were not able to invest in new business opportunities or equipment due to lack of funds. Yet another reality factor is the threatening re-emergence of the corona variant and the impending global recession predicted by World Bank and the effect of these on global economy.

The basic question is whether the MSME sector has come out of their cash flow crisis and ready to fulfil their financial commitment to their bankers and financial institutions and other creditors. Is the market recovered from its pandemic shock and ready to face the vagaries of the uncertain future?

Press release put out by Ministry of Finance, Government of India on ECONOMIC SURVEY 2022-2023 highlights that “Indian economy staging a broad based recovery across sectors, positioning to ascend to pre-pandemic growth path in FY23” and that “State of the Economy 2022-23: Recovery Complete” Further, while industry is showing steady credit recovery, “Credit to Micro, Small and Medium Enterprises (MSMEs) has grown by an average of around 30% since January 2022 and credit to large industry has been showing double-digit growth since October 2022.”

In keeping with the Economic Survey of optimism and hope, the budget presented by Finance Minister also taken some steps for the adequate flow of funds for MSME sector, easing of doing business, revamping of guarantee scheme to help the distressed smaller units under MSMEs which have cheered the MSME sector. While the intent of the Government is very clear, the ultimate success depends on how these schemes are going to be implemented down the line effectively.

While the optimism and hope with which the Government has taken the positive budgetary steps are praiseworthy, neither the economic survey nor the annual budget touched upon the World Bank report on Global Economic Forecast and its warning which states, Given fragile economic conditions, any new adverse development—such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic, or escalating geopolitical tensions—could push the global economy into recession. This would mark the first time in more than 80 years that two global recessions have occurred within the same decade.”

The economic survey or the budget envisage any counter action to be undertaken if the World Bank predictions come true. The probability and the possibility of any untoward calamity taking place at any time beyond anybody’s control cannot be overlooked and people cannot be caught unaware. It is time for the industry and business to undertake a review of their current financial status and performance analysis to understand their capacity to meet their financial commitments and the future shocks, if it strikes.

Therefore, it is advisable that the borrowers should approach their banks and financial institutions in case they feel any stress factor to seek their help and guidance from their banks and financial institutions at the earliest much before their loan repayment commitment starts. Complacency and indifferent attitude should be avoided to prevent greater catastrophe.

It is always better to remember that “PREVENTION IS BETTER THAN CURE.”

 (T. R. Radhakrishnan)

(The Author invites comments from readers and he can be contacted through his email [email protected])

  Support Us  

OpIndia is not rich like the mainstream media. Even a small contribution by you will help us keep running. Consider making a voluntary payment.

Trending now

- Advertisement -

Latest News

Recently Popular