A US recession could provide Indian economy the relief it needs
- Economists predict that the US could slip into
recessionin the near term because of rising inflation.
- As a result, crude oil prices have tumbled significantly in the last one month on fears of possible recession, aggressive
monetary policytightening by central banks, lockdown in parts of china.
- With the slowdown in the global economy, commodity prices are expected to fall further and benefit the
Indian economythat imports 80% of its needs.
AdvertisementThe number of Google searches for the word ‘recession’ have increased significantly and are higher than the global financial crisis in 2008. Fueling the fear of recession are several factors – the Russia-Ukraine war, soaring inflation, rising borrowing costs, and crude oil prices on a boil.
Several economists have predicted that the US, the world’s largest economy, could slip into recession in the near term.
With rapidly slowing growth momentum and a commitment by the US Fed to tame inflation, a mild recession in the December quarter this year is now more likely than not, according to a report by Nomura.
“Financial conditions are likely to tighten further, consumers are experiencing a significant negative sentiment shock, energy and food supply disruptions have worsened and the outlook for foreign growth has deteriorated. All these factors will likely contribute to the expected downturn,” said analysts at Nomura.
Economists at Goldman Sachs now believe that the chances of the US entering a recession over the next year have now doubled to 30% from 15% earlier. Morgan Stanley chief James Gorman told Reuters there is a 50% chance the US economy will enter a recession.
Recession is typically defined as a significant decline in economic activity that is spread across the economy and lasts more than a few months. Currently, prices of gas and food are at record high in the US resulting in 40 year high inflation.
Crude oil prices have seen a moderation in the last three months as Brent crude oil has been currently trading at around $115, as against its recent peak of around $128.
The cooling down in crude oil prices is attributed to fears of a possible recession in the global economy following aggressive monetary policy tightening by central banks around the world. Adding to it, ongoing Covid-led lockdowns in parts of China also caused a fall in prices.
These factors have helped cool down the demand for energy, and with the demand falling, prices have also started to come down. For a country like India which imports 80% of its crude oil needs, this is a positive development.
“If there is a slowdown in the US commodity prices might come down significantly. In other ways, India is going to get benefitted if there is a correction in crude oil commodity prices because the US is one of the biggest consumers of fuel,” Kranthi Bathini, director of equity strategy at WealthMills Securities, told Business Insider India.
Advertisement2022 recession might not be as bad as 2008’s
Despite the fear of recession becoming more commonplace now, analysts believe it won’t be as bad as the Great Financial Crisis of 2008.
“The recession might not be that critical but a minor one which might see some increase in the unemployment rate, sluggish demand, falling markets and general drop in prices of commodities which saw huge price appreciation recently,” Manoj Dalmia, founder and director at Proficient Equities told Business Insider.
Echoing similar sentiments, Bathini said, “This time, it’s completely different as inflation is at a historical high zone. So policy makers in the US want to pull down the economy and bring inflation under control,” he added.
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