The Global Economy: A Looming Recession, Speed Breakers, Mega Trends And More As we find ourselves in the midst of a rapidly changing world, several significant questions need to be asked with regards to the economy.
By Kabir Singh Bhandari •
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As we find ourselves in the midst of a rapidly changing world, several significant questions need to be asked with regards to the economy. What role is climate change going to play? Do we possess the tools to navigate the next economic slowdown or crisis? What does the road ahead look like? The answer to these questions lies at the intersection of various factors- digitization, trade wars, supply chain dynamics being just some of the several players.
"A mild recession looms not only over the US but also casts its shadow over Europe, the UK, and a China grappling with sluggishness. The economic horizon is a canvas of uncertainty, painted with demand-side and supply-side shocks, offering varied scenarios. The labour market, resilient against expectations, might prolong its strength, coexisting with contained supply-side shocks, ushering in a soft landing. Alternatively, geopolitical tremors could impact supply-chain, steering us into the murky waters of stagflation," says Sonal Varma, Nomura's Chief Economist, India and Asia.
Varma feels that we need to ask ourselves a critical question as we brace for the uncertainties of the future- Do we possess the tools to navigate the next economic slowdown or crisis? According to her, the playbook of the past, where interest rates could be slashed to zero and fiscal stimuli unleashed, face a unique challenge this time. The spectre of persistent inflation restrains central banks from the drastic rate cuts of previous years. The likelihood of returning to a zero-interest-rate policy environment seems increasingly improbable. On the fiscal front, the COVID shock has already inflated fiscal deficits globally, leaving us to confront the next crisis with an elevated burden of public debt. However, she feels that despite these challenges, there's a silver lining for emerging markets in Asia. Having avoided massive monetary and fiscal stimuli, these regions stand on more stable ground, focusing on reforms and prudent policymaking. While external risks persist, fundamentally, EM Asia finds itself in a comparatively advantageous position.
Other vital factors that beg our attention are climate change, something which Jayant Sinha, Chairperson of the standing committee on Finance, Parliament of India, highlights along with the obvious fast paced digitization.
"In navigating the next decade or two, the convergence of mega-trends like climate change, geopolitical shifts, and supply chain dynamics becomes pivotal for investors and advisors. Recognising climate change as a primary catalyst for economic success or peril, we've embarked on a journey towards a green frontier economy rooted in digitisation and decarbonisation. The intersection of digitisation, epitomized by UPI and India stack, with decarbonisation through renewables, electric vehicles, green hydrogen, and biofuels, defines India's progressive model. Net zero isn't just a response to a crisis; it's a net positive for GDP, job creation, and our planet," Sinha had said at the recent Morningstar Investment Conference which was held in Mumbai.
Sinha gives several current examples, while stating how amid global conflicts, India emerges as a safe haven, leveraging its demographic dividend, robust economy, democratic stability, and competitive federal structure. In the realm of trade wars, our 'China plus one' strategy positions us strategically, attracting significant investments in critical technologies. As we manufacture the iPhone 15 alongside China and boast a digital infrastructure envy of the world, India stands at the forefront of global economic evolution. Another standout instance he spoke about was the Bengaluru Terminal 2 as the perfect example of our Green Frontier Development model, amalgamating digitisation with DigiYatra and decarbonisation with its extensive natural environment design.
And the road ahead looks promising, with the recent Morningstar Global Investor Experience report talking about how India is emerging as one of the most transparent markets, providing investors with valuable insights, especially in terms of monthly holdings data and mandatory disclosure of managers' deferred compensation, points out Kunal Kapoor, CEO, Morningstar Inc. Kapoor concludes with some integral points to be remembered. "As we navigate this information-rich market, our focus as advisors remains on three crucial elements: cost reduction, leveraging technology for client engagement, and incorporating behavioural coaching to empower both novice and seasoned investors," he said.
