View: Downbeat global economy doesn’t mean disaster

Source: Economic Times, 06 January 2023

The new year has been rung in by a buildup of recession chatter. From Washington to Singapore, anxiety about a downturn is intensifying. While there are good reasons to be dour about the prospects for the global economy, 2023 doesn’t have to be a write-off. It could even turn out relatively well, given the prevailing pessimism.

Important forces that have dimmed the outlook will probably dissipate. China’s reopening will be bumpy and may buffet commerce before buttressing it. The world needs a China on its feet, even if doesn’t come close to replicating the kind of numbers that typified its heyday in the first decade of the century. By year’s end, the planet’s No. 2 power will be more robust than it is today.

Interest rates in the major economies are likely to take a break from the upward march that made 2022 so jarring. Policymakers are starting to talk about this prospect, something that would have been thought reckless a few months ago. The idea of cuts is contentious. Minutes of the Federal Open Market Committee’s December meeting, released Wednesday, warned against anticipating reductions anytime soon. Despite officials’ reluctance to countenance such a shift, it’s a natural next step after a pause.

Worries about economic fragility are understandable. The year was only a few hours old when South Korea, a major exporter, reported another dive in shipments. Singapore Prime Minister Lee Hsien Loong had just finished telling residents than 2023 would be challenging, with the US and Europe staring at recession. When a city-state that rises or falls on the beat of international capitalism sends up such a flare, pay attention. Central bankers have told us unemployment needs to rise to curb inflation. Never OK if you are among those getting a pink slip.

Bond markets began the week with gains that echoed the start of 2001, when the Fed was quick to reduce rates as the economy sagged. Fears of a slump then were justified, as they are now. Yet the eight-month recession that began in March that year was shallow compared with the swoons of 2007-2009 and 2020. The duration was slightly less than the average since World War II, noted the panel that determines the rise and fall of American business cycles. (Germany also slipped into contraction, as did Japan.)

Speaking of the Fed of yesteryear, former chair Alan Greenspan, who orchestrated a surprise rate cut in the opening days of 2001, said recently that a recession this time around is the “most likely outcome.” As tempting as dire prognostications can be, it’s important to remember that the global economy notched growth of about 2.5% in 2001. While never pleasant, recessions don’t have to be the end of the world, if indeed, we are headed for one. Perhaps we have been scarred by the severity of the past two dips.

Back in 2001, China was notching stunning numbers. The country was on its way to becoming the workshop of the world and all the superlatives we became accustomed to. That talk has receded the last few years. Criticism of Beijing’s approach to the pandemic in the past 12 months has been scathing. China went from world shock absorber to underperformer. But President Xi Jinping is now dismantling Covid controls. “While public health headlines will be negative for another month or two, or even a bit longer, a strong economic recovery is on the way,” wrote Wei He and Thomas Gatley of Gavekal Dragonomics in a Wednesday note.

The monetary-policy outlook is a tougher call, though. Even a pause would be a big deal after the most rapid global tightening in a generation. While Fed officials appear unified in their pushback against a less relentless approach, the US may be a laggard rather than leading indicator. For all the hype about India’s economy being one of the fulcrums of the 21st century, what the Reserve Bank of India says and does attracts relatively scant notice. Time for that to end. One of the most telling decisions of the past few weeks came from Jayanth Rama Varma, a longtime hawk on the RBI policy committee, who has become skeptical. Varma dissented against the bank’s December hike. The latest step poses “an unwarranted risk to economic growth,” he told Bloomberg News.

More people may come to share Varma’s views, if they don’t already, especially if inflation retreats some more. The Reserve Bank of Australia recently revealed that a pause was on the table in December, though the board opted for a quarter-point increase. The hike forecast in South Korea this month will likely be its last. These are encouraging signs, even if they derive from weaker activity. A course correction is coming.

By the time 2024 comes around things will look better. There will just be some bumps along the way.

Spain to extend jobless benefits, sees productivity pact

MADRID : Spain’s Socialist government plans to extend benefits for the unemployed as a result of an agreement reached with other left-wing parties, politicians Involved in the pact told state radio on Sunday.

Currently, only those who have worked and contributed to the social security system are eligible for jobless benefits, and only for a limited period of time. Unempl   oyment is currently running at about 4 million people having almost doubled in one year and is rising more quickly than in any other major economy.

The new system would seek to extend benefits to those who have not worked previously, as well as to those whose subsidies have run out, and would start in the coming months.

“We plan to implement a fund to reintegrate (the jobless) and to create employment,” Gaspar Llamazares, parliamentary spokesman for United Left, told state radio, without specifying financial details. The government does not have a sufficient majority in parliament to pass the legislation without the backing of other parties.

Speaking at a political meeting on Sunday, Prime Minister Jose Luis Rodriguez Zapatero said that in a few weeks he would propose to unions and employers a plan to boost productivity and make the economy more stable. Data last week showed Spain’s economy shrank at its worst rate in half a century in the first quarter of 2009, deepening a nine-month recession.

Gross domestic product fell 2.9 percent year-on-year in the first quarter, more than four times a 0.7 percent contraction in the final three months of 2008. Businesses have called for measures to make hiring and firing cheaper and easier, but Zapatero has promised unions he will not implement such moves.

 Source : Economic  Times  18/05/09

‘India, China on same track economically, albeit at different speeds’

As a citizen of modern China, I was excited to join the BBC India Election Train. How does such a vast country keep its election process on track? Like China, India is more than a nation  it is a rich stew of people, politics and agendas; many countries in one balancing diversity and unity along the tightrope of history. But India and China are meeting this challenge in very different ways.

Last week in Mumbai, people in one of the city’s slums told me that they would all vote the next day, in the hope that their living conditions might soon be improved. It seems to be the same story among all the communities I have met so far; a continuing optimism  sometimes against all odds that their political choices can better their lives. Indians to whom I have spoken are proud of their democracy, but they also tend to temper this with realism. Corruption, poverty and the city-country divide remain serious issues. The current government faces criticism for its perceived failure to deliver on its promises.

I am struck here not just by political differences but by the sense that India and China are on the same track economically, albeit at different speeds. India feels a little like China did in the 1970s; the model of special economic zones came, of course, from Deng Xiao Ping. In Hyderabad, the construction sites all along the roads and the bright neon lights in the newly developed area reminded me of Shenzhen a zone that went from a fishing village to workshop of the world within a single generation.

In Hyderabad, former Andhra Pradesh chief minister N Chandrababu Naidu acknowledged that China had made faster economic progress than India. He added, perhaps with a sense of irony, that China’s policy makers were not hampered by democratic accountability. If you upset your constituents in India you may be out at the next polls. Not only that, you are also accountable to a robust and independent media. No such brakes exist on the train of Chinese political will. China, of course, has no free election; while politicians in India must be cautious when making decisions, because any policy mistake would lead to failure at the subsequent polls.

So, for me it is easy to see why Indians are proud of their colossal democracy. Compared to China, the free press is a vortex of ideas, attacks and debate. Rural workers are free to move to any city they like and settle down. These seemingly simple things represent a level of personal freedom still largely unknown in China. Slum-dwellers in India’s cities may suffer from their low pay and living conditions, but the government does not send them back home if they don’t find work.

The other day we stopped at a station near the naval base of Visakhapatnam. An electronics engineer I met there told me this was the cleanest and fairest election ever in Indian history. And then he added that India should adopt the Chinese model of efficient economic reform.

India may want to emulate China but there is more than one path to any destination.

Source : Business Standard  19/05/09

India Inc confident of weathering slowdown

: India Inc is confident that it can weather the slowdown, going by the findings of a recent survey by Ernst & Young (E&Y), titled ‘Opportunities in Adversity: India Inc’s response to the financial downturn’.

E&Y prepared this report based on the collective views of 121 leading finance professionals interviewed for this exercise. They were from diverse fields such as IT, consumer goods, real-estate, automotive, pharma/healthcare, media & entertainment etc.

Only 25 per cent of respondents reported a “high” impact of the slowdown, with the balance experiencing either “low” or “medium”. Similarly, 42 per cent said they would achieve 90 per cent of their targets for FY09, while 43 per cent put this at the 70-90 per cent range. Only 15 per cent believed that they would not attain over 70 per cent of the target.

Growth outlook

As for the outlook this year, 46 per cent of the respondents indicated that they would achieve at least 10 per cent growth for the period ended 2010 while 65 per cent said they expected the slowdown to continue for at least two years longer. A third of the sample (27 per cent) said it would last 6-12 months. Nearly three-fourth (72 per cent) of the respondents said they faced increasing pricing pressure from customers while 66 per cent indicated that there had been a slowdown in order bookings.

About 85 per cent said that cost reduction was top priority while 71 per cent had shifted focus from growth to preserving cash. On managing people costs, 69 per cent of the respondents laid “high” emphasis on rightsizing (not to be read as layoffs), such as redeployment, workforce sharing, etc, while 61 per cent indicated a “high” possibility of a hiring freeze.

According to the survey, while companies are exploring the option of containing manpower costs, this poses a severe threat of an adverse impact on the motivation levels of organisations’ critical talent as well as their retention. The need is to sharpen the linkage between individual performance and variable pay.

It is interesting to note that 61 per cent of respondents gave “low” preference to reducing or eliminating training and other costs related with employee programmes.

Source: The Hindu Business Line 6/05/09

Economy poised for a rebound

The worst is over and the economy looks set for a rebound. This may sound contra-intuitive after dire predictions of a long and deep slowdown, but economists and investment bankers interviewed by TOI see a revival as early as September, or latest by December.

All of them see growth riding on the back of domestic demand rather than overseas business but caution that some sectors such as IT may take a little longer.

The pace of rebound being projected ranges from an optimistic 8% of GDP to a cautious 6-7% in the last quarter. For the full fiscal, there’s consensus on 6.5-7% except a CII forecast that pegged it at 6-6.5%. But a word of caution here will not be out of place. These figures could still go off the mark as the signs may be deceptive. This is just like when the specialists failed to see through the boom to see the bust coming.

“Green shoots of growth are showing in some sectors and we can certainly see a sustainable upward movement by the September-October busy season. Summer is lean period as activities usually slow down before picking up in September… or more in October,” Ficci secretary-general Amit Mitra said.

Suresh Tendulkar, chairman of PM’s Economic Advisory Council, was more optimistic and said recovery had started. “There have been some pressure on the bottomline and profit growth may not be as high as expected. But the way revenues have grown, it shows revival has started,” he said.

Investment bankers agree that a recovery is in the offing but give it a couple of more months. “A turnaround will start showing signs from the third quarter and pick up in the December quarter,” said a Mumbai-based economist with a major investment bank, requesting neither he nor his oganisation be identified.

This is the time-frame Arvind Mahajan of global consultancy firm KPMG is also looking at. “A turnaround will start happening in the last quarter of the financial year, or conversely, the end of the calendar year… from December.” But he also feels there could be issues. “My guess is growth will be at 6-7% if you are lucky. There may be some issues on the supply side of infrastructure projects. Liquidity issues. If you look back at when we were having 8-9% growth rates, you see a lot of liquidity flowing in that had a bearing on the valuations etc.”

Before the good times roll though, some sectors could slip a little more. “The turnaround will not happen as a whole of the economy. Some sectors are bottoming out in the next two quarters,” said Mahajan. The investment banker sees oil and gas as flatish, Mitra adds exports by small and medium enterprises in textiles and jewellery. For Tendulkar, the worst performance is behind us — in the third quarter of 2008-09.

Mahajan’s reason for the slow recovery in these sectors: “Japan and Europe will not rebound at the same time as the US. Because they suffered less (than the US) they will take time to bounce back.”

All of them identified infrastructure as the engine, driving demand in steel, cement and other manufactured items. “Infrastructure will spur the drawdown on inventories. That’s happened in cement and is starting to happen in steel,” said the investment banker.

Mahajan sees agriculture in a support role. “It will prompt rural demand but since there’s a rigidity in the sector, it is not like the farm sector will carry the economy as a whole. A good monsoon and a good crop will certainly help the economic revival but that will not be the sole driver. After all, you already have good rural demand.”

Mitra said steel and cement signified some turnaround in producer side. “FMCG never suffered. Activities in small housing are coming back. All these can be sustained if interest rates come down… projects become viable, start getting off the ground and (with low interest) propel consumer side interest.”

Source: The Economic Times 4/05/09