Although, India has been among the bright sparks in the global growth picture, It will battle inflationary pressures. Other emerging economies will confront growth challenges of their own
The Global Supply Chain Pressure Index—a measure of conditions related to supply-side pressures in international commerce—has eased off peaks from last November, and anyone who has pumped gas lately would be aware that energy prices have likewise tempered significantly since the middle of the year.
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Global growth might be in for a rude shock. It seems too soon for this, of course; wasn’t the pandemic-induced recession just two years or so ago? Perhaps, but there are reasons to believe that some major economies are going through soft patches.
The most major concern is in the United States, where a number of forward-looking indicators—such as the Purchasing Managers’ Index, which captures producer sentiment—have flashed red for a while now. Momentum has visibly declined, as the Federal Reserve’s aggressive interest rate hikes have induced a slowdown in investment activity since the start of the year, while spending by the mighty American consumer has likewise pared back in recent months. The U.S. may yet escape a recession, but one of the most reliable signals of an impending recession—an inversion of the so-called yield curve, which occurs when the long-term interest rate falls below the shorter-term one—suggests that one could well occur in the second half of 2023. Real-time estimates of the state of the economy point to about 1 percent expansion in the last quarter of the year; positive still, but barely so.
There is some indicative evidence that the Euro Area is weak as well, which is unsurprising given the spillover effects of the Russo-Ukrainian war so close to its borders. GDP figures have barely edged past zero for the past year, averaging 0.6 percent for the past four quarters. Even if it skirts an outright recession, Europe remains in a fragile state, and could easily tip into recession if the winter turns out to be harsher than expected (high energy prices never help), or if the impulse received from government-induced support last year fades more quickly than anticipated (deficit-financed spending can’t go on forever), or if the overhang from its rising debt burden dampens private sector expenditures (another European debt crisis, anyone?). Although few observers today regard the Old World as a global growth engine any longer, the region remains the world’s third-largest economy, and accounts for a sixth of its output. Anemic growth there will have consequences for the global economic picture.
China has recently received a boost from its decision to bite the bullet and (belatedly) reopen its economy in the face of COVID-19. This long-awaited decision has likely allowed China to avoid a self-imposed contraction, as the nature of its top-down economy means that it should be able to revive the drivers of growth on command. Even so, the likelihood of a quick revival is slim, as the country remains heavily reliant on external sources, despite its best efforts to rebalance its growth model toward an internal dynamic (an effort the Chinese government has termed a “dual circulation” approach). Layered on this near-term drag is the fact that China’s growth potential has already downshifted; the inevitable result of demographic changes—the legacy of a one-child policy means that the ratio of the country’s working-to-nonworking age population peaked a half-decade ago—as well as lower efficiency of investment resulting from overaccumulation of capital.
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