The Reserve Bank of India (RBI) recently released the “State of the Economy” report, warning about an increasingly grim global economic outlook for 2023. This year’s unstable monetary policy actions will impact the economy extensively, and several factors are contributing to this scenario.
The Darkening Global Outlook
The report highlights that the balance of risks for 2023 is leaning towards a gloomy global outlook. This is due to various factors including a precarious state of Emerging Market Economies (EMEs), rising debt distress, fluctuations in oil prices, and ongoing geopolitical conflicts, such as the war in Ukraine.
State of the Emerging Market Economies
EMEs are undergoing substantial stress, dealing with currency depreciations, capital outflows, slowing growth, and high inflation. These economies’ situations appear increasingly uncertain as they grapple with these issues.
Turbulence in Energy Prices
Uncertainty looms around energy prices. Even though Organisation of the Petroleum Exporting Countries (OPEC) plus has refrained from making cuts in production, the possibility of an oil price cap threatens financial stability. Despite a moderation in global commodity markets, food prices are poised to remain high due to climate change and the war in Ukraine.
The Rising Debt Distress
Debt distress is also on the rise, characterized by surging default rates and an appreciating US dollar. Despite a recent fall from 20-year highs, most debts are still denominated in US dollars, adding to the global economic stress.
Growth Outlook for India
The Indian economy’s near-term growth is backed by domestic drivers. Centred on decreased inflation, resilience in domestic economic activity, and a favourable base effect, the nation’s growth prognosis looks promising. However, slightly high inflation in rural areas can curb spending in these regions.
The Role of Inflation
Inflation stands as a critical factor in the growth outlook. While expected to soften in 2023, it’s predicted to stay above targets in most economies due to the sharp drop in food inflation.
Equity Market Performance
The equity markets have hit consecutive highs in November, driven by strong portfolio flows towards India. Reduced input cost pressures, robust corporate sales, and increased fixed asset investments signal the start of an upturn in the capital expenditure cycle, accelerating growth momentum in the Indian economy.
India’s Position on the Global Stage
India’s stature is growing on the global stage, as reflected in its role as G20 President in December 2022. As the third-largest economy in Purchasing Power Parity (PPP) terms and the fifth largest at market exchange rates, India contributes significantly to global GDP. It’s projected to be among the fastest-growing economies in the G20 by 2023.
India’s priorities under the G20 Presidency encapsulate unity and interconnectedness, reflecting the ambitions of the global South: One Earth, One Family, One Future. These developments bear witness to India’s growing influence and its readiness to take central stage in global affairs.
