One cost of the past two years of limited air travel is that it became too easy to lose touch with what was really happening in other countries. Having not returned in a number of years, a trip last month was a reminder that it’s always impressive to absorb, even fleetingly, how fast emerging economies such as India are changing, and notwithstanding the pandemic, largely improving. Better infrastructure, cleaner streets, more and better cars, fewer but better motorbikes, fancier shops and restaurants, way more mobile phones. The pace of change is well beyond what most people in rich countries like Australia are used to.
Nowhere is India’s progress more evident than in the tech sector. In the past India’s tech story was all about its dynamic entrepreneurs and skilled IT workers. Today however, the most impressive elements are what is happening at the bottom of the pyramid, via digitally enabled inclusion.
Sustained government efforts over more than a decade have delivered in spades. Most of India’s population now has access to both a unique biometric ID and a bank account. A decade ago, most lacked access to either formal identification or the banking system. A unified payments interface now allows for easy transfers and payments. And all this digitalisation is not only driving a boom in innovation and start-ups, but also enabling a promising modernisation of India’s notoriously “leaky” welfare system – using direct benefit transfers that are better targeted and reduce opportunities for corruption. Arriving just in time to make a difference during the pandemic, according to one study.
India’s broader economic outlook however seems less rosy. Much is made of the fact that India is now expected to be the world’s fastest growing large economy, given China’s ongoing structural slowdown. India’s economy has certainly rebounded strongly and most official forecasts are for growth of about 7 per cent over the coming years, despite a troubled global economy.
Delve only slightly deeper however, and things look less impressive.
Other countries will likely retain most of the benefits of greater openness. India risks forfeiting them.
India suffered an especially acute economic collapse in 2020. Despite the rebound, its economy is still 13 per cent below its pre-Covid trajectory (using earlier International Monetary Fund projections), or what might broadly be considered its “normal” running level – one of the biggest such gaps among major economies. None of the top economists I was able to speak to thought India would be able to close the gap (nor does the IMF). Many also suggested they wouldn’t be surprised if growth was much slower over the next few years, at say 5 per cent. High debt, a big budget deficit, accelerating inflation, and rising global interest rates mean India has little room to manoeuvre.
Delivering growth of 5-7 per cent might still seem pretty good. But most economists think India needs upwards of 7 per cent growth to create enough decent jobs for its young and rapidly expanding workforce. Especially after the setbacks caused by the pandemic which destroyed many better jobs and sent migrant workers back to the countryside. A major point of concern is that labour force participation, especially among women, seems to have been falling since before Covid-19 struck.
India has always struggled generating enough decent jobs, despite fast economic growth. The explanation lies in its unique growth model driven by relatively high skilled sectors (IT but also within manufacturing) as opposed to the labour-absorbing low skilled manufacturing exports seen in most other non-resource driven rapid growth economies (in East Asia and more recently in Bangladesh).
Delivering better jobs, and faster economic growth, will likely require getting Indian manufacturing going in a much bigger way.
Economists generally think doing so requires greater openness to trade and foreign direct investment (FDI), especially as a means of integrating into global value chains. It concerns many then that the Modi government has instead increased tariffs while spurning the Regional Comprehensive Economic Partnership. Trade negotiations with selected partners, including Australia and the European Union, seem motivated more by diplomacy than economics, and a weak substitute for broader liberalisation in any case. India has joined the US-led Indo-Pacific Economic Framework, but the arrangement is not about market opening, at least for now.
Distrust of China and concerns about supply chain resilience are driving factors but also cover for longstanding protectionist currents – now reinforced as the world seemingly converges on India’s more sceptical views of globalisation. Lost however is that most other leading economies are far more open than India to begin with, even if they are perhaps paring this back. Other countries will therefore likely retain most of the benefits of greater openness. India risks forfeiting them.
The government has not however given up on manufacturing. It is just pursuing its own strategy. First, it is hoping that domestic reforms and infrastructure investment can themselves improve India’s manufacturing competitiveness by enough to make a substantial difference. Second, for selected subsectors, the government has rolled out “production linked incentives” (subsidies) aimed at closing the remaining competitiveness gap and luring relocating global supply chains – with some success to date for instance in attracting iPhone contractors such as Foxconn to set up shop.
Supporters point to a jump in merchandise exports and FDI inflows as vindication. But a broader view suggests this is less meaningful than it seems. Trade in goods has boomed globally during the pandemic. India has only modestly outperformed the world average and global trade is expected to slow as demand conditions normalise (or worse). FDI inflows rose substantially through to the middle of 2021 but have eased since. India is big, so any improvement in manufacturing will be noticed. Relative to the size of India’s economy however, both merchandise exports and FDI continue to hover around the average levels seen last decade at 13 per cent and 2 per cent of GDP respectively.
As Amita Batra, economics professor at Jawaharlal Nehru University, has recently written for The Interpreter, a starting point to do better would be for Indian trade policy to prioritise deeper integration with ASEAN. Indeed, this was a key suggestion from several regional experts at the Delhi Dialogue on India-ASEAN relations (which is why I was in New Delhi in the first place).
India’s economy will probably continue to grow reasonably fast. Moreover, digitalisation holds out the promise of dual benefits in driving business dynamism at the top and fostering greater inclusion through digitally enabled services and social transfers at the bottom. Whether India can generate enough decent jobs for its people however remains the big concern.
Roland Rajah’s travel was supported by Research and Information System for Developing Countries (RIS) to attend the Delhi Dialogue on India-ASEAN relations.
Charting the Global Economy: US Inflation Comes Off the Boil – BNN Bloomberg
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Inflationary pressures in the US simmered down on the heels of cheaper gasoline and other fuel costs, which may help persuade the Federal Reserve to ease up a touch on the monetary policy brakes.
In the UK, the economy shrank in the second quarter for the first time since Covid-19 lockdowns more than a year ago. Singapore reduced its growth forecast for this year after its economy contracted last quarter, while rapid inflation encouraged steep interest-rate hikes by monetary authorities in Mexico and Argentina.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
Inflation decelerated in July by more than expected, reflecting lower energy prices, which may take some pressure off the Federal Reserve to continue aggressively boosting interest rates. Consumer prices increased 8.5% from a year ago after hitting a more than 40-year high of 9.1% a month earlier.
Ending emergency unemployment benefits had a significant impact on boosting employment, according to a St. Louis Fed working paper that may underline Republican criticism of a 2021 program.
Rental costs are soaring at the fastest pace in more than three decades, surpassing a median of $2,000 a month for the first time ever.
The UK economy shrank in the second quarter for the first time since the pandemic, driven by a decline in spending by households and on fighting the coronavirus. Gross domestic product fell 0.1% after an 0.8% gain in the first quarter. The Bank of England expects that inflation raging at a 40-year high will tip the economy into a recession later this year.
Spain is opening its doors to foreign workers to fix labor shortages and ease a demographic slump threatening its future prosperity. In contrast with more anti-immigrant politics in much of Europe, the government has loosened rules to allow the recruitment of employees in their countries, mostly in Latin America, for both skilled and unskilled jobs that are hard to fill.
Singapore trimmed its 2022 growth forecast to reflect an increasingly challenging global environment, after the economy slipped into contraction in the second quarter. Final data for the June quarter Thursday showed gross domestic product shrank 0.2% from the previous three months, and worse than the zero growth estimated by Ministry of Trade and Industry earlier.
A global spell of high inflation, aggressive monetary tightening and the risk of a recession are prompting economists to revise Indonesia’s economic forecasts for the remainder of the year. Analysts raised inflation projections for the third and fourth quarters by almost a full percentage point to 5% and 5.15%, respectively, median forecasts from Bloomberg’s latest monthly survey showed.
Argentina’s central bank raised its benchmark Leliq rate to 69.5%, representing the largest hike in almost three years and signaling a more aggressive stance against surging inflation. Mexico’s central bank boosted its key rate to an all-time high of 8.5%.
Brazil consumer prices tumbled by the most on record in July after President Jair Bolsonaro slashed utility taxes to tame the soaring cost of living and lift his re-election chances.
Kenya’s presidential election took place Tuesday as East Africa’s largest economy grapples with surging living costs and rampant unemployment. Deputy President William Ruto and Raila Odinga, a former prime minister who’s running for president for a fifth time, were the clear front-runners to succeed incumbent leader Uhuru Kenyatta. Final results are expected by Aug. 16.
When Group of Seven leaders gathered in the Bavarian Alps in June, they pledged to stand with Ukraine for the long haul. Their Group of 20 counterparts are proving less supportive. Only half have joined the international sanctions imposed on fellow member Russia over its invasion of Ukraine.
Chinese exports to Russia are back near levels seen before the Kremlin’s invasion of Ukraine, propelling a rebound in trade that’s helped cool off a historic rally in the ruble. Russia bought $6.7 billion of goods in July from China, an increase of more than a third from the previous month and up by more than an annual 20%.
Bloomberg interviewed several families — in Nigeria, India, Brazil and the US — various times between June and August last year about the swaps and sacrifices they were making in order to keep food on the table as prices rose. It turns out, chronicling what was then eye-popping food inflation wouldn’t capture the depths of what was to come.
©2022 Bloomberg L.P.
Victoria looks to be a national leader in the circular economy – Saanich News
When athletes stood on the podium during last summer’s Tokyo Olympics, the medals hanging from their necks were made from melted-down metals in six million old cell phones and other discarded electronics.
Others, nowadays, enjoy having their home moderated by insulation made from the excess scraps of denim that don’t get to become jeans.
Those are two examples of the circular economy that researchers say could recover $4.5 trillion worth of otherwise wasted resources by 2030. Keeping materials out of the landfill in the market is something the City of Victoria hopes to capitalize on as it adds a circular lens to its 20-year economic strategy.
Spurred by a motion from Coun. Jeremy Loveday, the city will now add a section to Victoria 3.0 on becoming a national leader in the circular economy.
“Making sure our economic priorities align with our goals regarding climate action and waste reduction, I think this helps us also to be in a better place to capitalize on the economic benefit of the circular economy which is predicted to continue to grow,” Loveday said before council approved the motion this month.
The action will include ensuring there are zoned areas for circular businesses and non-profits to operate within the city. Those will include light industry spaces, which Victoria-based Project Zero says reduces a key barrier for entrepreneurs trying to scale up their up-cycle or repair businesses.
“There isn’t anything right now that’s on that smaller scale or that’s financially accessible,” said Georgia Lavender, who leads Project Zero’s circular economy program.
The non-profit has been running a local entrepreneur incubator for five years, but the term “circular economy” was still new to people a couple of years ago, she said. But Lavender has been inspired lately by all sectors and levels of government seeing the approach as a way to support local innovation, job creation and supply chain resiliency.
“We’ve seen a really big shift toward regions wanting to implement a circular economy model and really seeing the opportunities it holds, not only from an environmental perspective but also an economic development perspective,” she said.
Some of Project Zero’s Victoria start-ups now commercializing include the cup-share service Nulla and BinBreeze, which uses waste wood to improve compost bin productivity and pest deterrence.
Lavender said the innovators are helping to cut emissions while creating jobs, and Vancouver Island as a whole has the opportunity to position itself as a leader in the circular sector. The focus could help the supply chain be more resilient, Lavender said, by using local manufacturing to reuse resources instead of shipping waste off the Island for processing.
The Victoria direction also commits to business space in the coming Arts and Innovation District, the creation of a circular economy hub, exploring partnerships for a zero waste demonstration site and launching an innovation grant.
“Things like that just create more opportunity for these ventures to keep their operations within Victoria and not have to move to other regions,” Lavender said.
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Soft landing hopes for U.S. economy brighten outlook on stocks – The Globe and Mail
Optimism is seeping back into the U.S. stock market, as some investors grow more convinced that the economy may avoid a severe downturn even as it copes with high inflation.
The benchmark S&P 500 has rebounded about 15% since mid-June, halving its year-to-date loss, and the tech-heavy Nasdaq Composite is up 20% over that time. Many of the so-called meme stocks that had been pummeled in the first half of the year have come screaming back, while the Cboe Volatility Index, known as Wall Street’s fear gauge, stands near a four-month low.
In the past week, bullish sentiment reached its highest level since March, according to a survey from the American Association of Individual Investors. Earlier this year, that gauge tumbled to its lowest in nearly 30 years, when stocks swooned on worries over how the Federal Reserve’s monetary tightening would hit the economy.
“We have experienced a fair amount of pain, but the perspective in how people are trading has turned violently towards a glass half full versus a glass half empty,” said Mark Hackett, Nationwide’s chief of investment research.
Data over the last two weeks bolstered hopes that the Fed can achieve a soft landing for the economy. While last week’s strong jobs report allayed fears of recession, inflation numbers this week showed the largest month-on-month deceleration of consumer price increases since 1973.
The shift in market mood was reflected in data released by BoFA Global Research on Friday: tech stocks saw their largest inflows in around two months over the past week, while Treasury Inflation-Protected Securities, or TIPS, which are used to hedge against inflation, notched their fifth straight week of outflows.
“If in fact a soft landing is possible, then you’d want to see the kind of data inputs that we have seen thus far,” said Art Hogan, chief market strategist at B. Riley Wealth. “Strong jobs number and declining inflation would both be important inputs into that theory.”
Through Thursday, the S&P 500 was up 1.5% for the week, on track for its fourth straight week of gains.
Until recently, optimism was hard to come by. Equity positioning last month stood in the 12th percentile of its range since January 2010, a July 29 note by Deutsche Bank analysts said, and some market participants have attributed the big jump in stocks to investors rapidly unwinding their bearish bets.
With stock market gyrations dropping to multi-month lows, further support for equities could come from funds that track volatility and turn bullish when market swings subside.
Volatility targeting funds could soak up about $100 billion of equity exposure in the coming months if gyrations remain muted, said Anand Omprakash, head of derivatives quantitative strategy at Elevation Securities.
“Should their allocation increase, this would provide a tailwind for equity prices,” Omprakash said.
Investors next week will be watching retail sales and housing data. Earnings reports are also due from a number of top retailers, including Walmart and Home Depot, that will give fresh insight into the health of the consumer.
Plenty of trepidation remains in markets, with many investors still bruised from the S&P 500′s 20.6% tumble in the first six months of the year.
Fed officials have pushed back on expectations that the central bank will end its rate hikes sooner than anticipated, and economists have warned that inflation could return in coming months.
Some investors have grown alarmed at how quickly risk appetite has rebounded. The Ark Innovation ETF, a prominent casualty of this year’s bear market, has soared around 35% since mid-June, while shares of AMC Entertainment Holdings , one of the original “meme stocks,” have doubled over that time.
“You look across assets right now, and you don’t see a lot of risks priced in anymore to markets,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.
Keith Lerner, co-chief investment officer at Truist Advisory Services, believes technical resistance and ballooning stock valuations are likely to make it difficult for the S&P 500 to advance far beyond the 4200-4300 level. The index was recently at 4249 on Friday afternoon.
Seasonality may also play a role. September – when the Fed holds its next monetary policy meeting – has been the worst month for stocks, with the S&P 500 losing an average 1.04% since 1928, Refinitiv data showed.
Wall Streeters taking vacations throughout August could also drain volume and stir volatility, said Hogan, of B. Riley Wealth.
“Lighter liquidity tends to exaggerate or exacerbate moves,” he said.
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