Why economists are forecasting a ‘partial recession’ for India in coming quarters

All major economies globally are going through external and internal pressures, which makes the job of an economist tricky and even more relevant in a fast-changing world like this. Economists in India are mostly pointing towards a “partial recession” and uneven recovery going forward. “The Central government is not only stable but doing a lot of things to get the economic act together. PLI, for instance, is very controversial but it is a move in the right direction. There are a couple of issues that bother me for example, despite the government’s best efforts. The recovery has been very uneven,” said Abheek Barua, chief economist and executive vice president, HDFC Bank said at the India Today Conclave in Mumbai.

The demand for compact cars, he added, has evaporated. “With the combination of recovery and inflation eating into people’s disposable incomes, we may see a very uneven recovery. If the government doesn’t address that effectively, this might not be sustainable. The other thing is that on the external side, we have some pressure points like the large current account deficit,” he said.

According to HSBC, the mantra of 2022 globally has been that we’ve to bring down global inflation even if that means we’ve to sacrifice growth in the short run. “We’ve seen the impact of that in the financial markets across the world, bond deals have gone up, the dollar has strengthened, equity markets have corrected but we’ve also started to see the impact of that mantra on the real economy,” Pranjal Bhandari, MD, Chief India Economist, ASEAN Economist, HSBC said.

“We’re seeing how household mortgage costs are rising, how household construction affordability is falling, how consumer’s real purchasing power is falling, how consumer confidence is weakening. All of this is coming out of the advanced economies. We’re not forecasting a synchronised recession globally, what we are forecasting is partial recession. And the repercussion of all that will be felt on India as well,” she adds.

Credit Suisse’s Neelkanth Mishra says that the economy is slowing but from a much higher level than what is currently being projected. The current trajectory of the economy is very strong that’s reflected in very strong numbers of tax collections, car sales, airline traffic and a whole range of indicators but given that interest rates in India and globally are going up, export numbers are staring to weaken quite meaningfully now, he adds.

“One point I worry about is a risk of a global accident. Some of these things are what economists call non-linear. Given that the world has not seen this high level of interest rates, this level of fiscal dominance for a very long time, the markets have zero tolerance for policy mistakes. Steady trend growth should be 7 per cent of so once the basis is adjusted but we need to be very varied of potential risk of accidents globally,” Neelkanth Mishra. Co-head, Asia Pacific strategy, India Equity Strategist, Credit Suisse said.

According to the Centre for Monitoring Indian Economy, the coming few quarters will be slightly slow than what we saw so far. India has survived the turmoil quite well. “We have shown that we’ve quite resilient in extremely severe shocks and we’re still growing at a fairly good clip. What is more important is that the biggest driver of the growth which is the big enterprises of India have done remarkably well. We will surprise most forecasts on the upper side,” Mahesh Vyas, MD and CEO, Centre for Monitoring Indian Economy said.