India’s Economy Seen Losing Speed as Rising Rates Hurt Demand - BNN Bloomberg

Economy

India’s Economy Seen Losing Speed as Rising Rates Hurt Demand – BNN Bloomberg

Published

1 month ago

February 27, 2023

Harry Miller

(Bloomberg) — India’s economic expansion likely slowed in the October-December period, as rising borrowing costs crimp consumption that’s a key growth driver.

Gross domestic product probably rose 4.7% last quarter from a year ago, according to a median estimate of economists in a Bloomberg survey ahead of data due Tuesday at 5:30 p.m. local time. That will be the slowest quarterly performance since the 4.09% expansion in the three months ended March last year.

Economists are projecting growth of 6.9% for the fiscal year from April 2022 to March 2023 — a tad below the government’s prior 7% estimate and slightly higher than the International Monetary Fund’s 6.8% projection.

“There are signs that higher interest rates are feeding through to the real economy,” said Shilan Shah, a senior economist at Capital Economics in Singapore, citing falling passenger vehicle sales and slowing retail transactions. “This suggests that consumption has weakened a touch.”

Waning consumption, which accounts for 60% of GDP, risks hurting growth in Asia’s third-largest economy, as borrowing costs rise. The Reserve Bank of India has increased interest rates by 250 basis points since May to tame inflation and signaled it isn’t ready to pause just yet, amid growing dissent within the rate-setting panel.

“My fear is that all sources of demand in the economy are contracting at the same time,” Jayanth Rama Varma, an external member of RBI’s Monetary Policy Committee, said in a recent interview.

With exports struggling on waning global demand and the government forges ahead with fiscal consolidation, Varma said rising borrowing costs will dent household budgets and, in turn, consumption. For Shashanka Bhide, another rate setter, demand in the economy is fueling inflation.

What Bloomberg Economics Says…

With the recovery on shaky ground, we think any further tightening would amplify downside risks to growth.

— Abhishek Gupta, senior India economist

For the full note, click here

There might be more pain in store as interest rates go up further and consumer activity in India’s key export market — the US — loses steam.

“Exports have slowed in the December quarter as the global economy hits the brakes,” said Pranjul Bhandari, chief India economist at HSBC Holdings Plc. “There were pockets of resilience,” he said, citing investment, improving rural economy, and goods outperforming services.

That’s helping India pull off a relatively strong performance in a tough environment where even China indicators are pointing to an uneven recovery despite its reopening. India is poised to expand at the world’s fastest pace in the fiscal year starting April, according to the IMF.

“A resilient domestic backdrop and continued increase in services activity continued to prop up India’s growth,” said Rahul Bajoria, an economist with Barclays Bank Plc.

–With assistance from Tomoko Sato and Cynthia Li.

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Economy

Can Russia and China succeed in dethroning the dollar?

Published

8 hours ago

April 1, 2023

Harry Miller

From: Counting the Cost

Russia turns to China’s Yuan as its foreign currency of choice and supports it in trade with other countries.

Since being shut out of much of the global financial system, Russia has sought alternatives to soften the effects of Western sanctions.

It has turned to China for an economic lifeline and has been increasingly embracing the yuan.

Trade between the two countries hit a record of $190bn last year, with much of those payments made in Chinese and Russian currencies.

The two biggest geopolitical rivals of the United States want to counterbalance the dominance of the dollar worldwide.

Elsewhere, Ukraine has won the IMF’s first loan to a country at war.

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Economy

Charting the Global Economy: Recovery in China Gathers Pace

Published

13 hours ago

April 1, 2023

Harry Miller

8fk]oem8pg219s085bjy8e62_media_dl_1.png Bloomberg RSS

(Bloomberg) — China’s recovery gained traction in March, showing the world’s second-largest economy is strengthening after stringent pandemic restrictions were dropped and Covid infection waves eased.

In Europe, inflation excluding food and energy costs hit a record last month, reinforcing calls from several European Central Bank officials that more interest-rate increases are needed. In the US, however, core price pressures eased in February by more than forecast, which may allow the Federal Reserve to pause rate hikes soon.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

Asia

China’s economic recovery gathered pace in March, with gauges for manufacturing, services and construction activity remaining strong, boosting the outlook for growth this year.

South Korea’s construction deals fell by a record margin in the fourth quarter as the property market cooled with rising interest rates weakening demand and inflation fueling costs.

South Korea is forecast to overtake China in spending on advanced chipmaking equipment next year in a sign of US export controls reshaping global supply chains for semiconductors.

Europe

Underlying inflation in the euro area hit a fresh high, handing ammunition to ECB officials who say interest-rate increases aren’t over yet. The rise to 5.7% in March’s core price reading, which strips out volatile items like fuel and food costs, came alongside a record plunge in headline inflation to 6.9% from 8.5% in February.

While Sweden sits between France and Switzerland in a ranking of dollar billionaires, many poorer Swedes have seen the gap between the haves and the have-nots widen dramatically in recent times. At the heart of Sweden’s woes is a dysfunctional housing market, which has not only cemented social divides, but exacerbated them.

A key gauge of US inflation rose in February by less than expected and consumer spending stabilized, suggesting the Fed may be close to ending its most aggressive cycle of interest-rate hikes in decades. Excluding food and energy, the core personal consumption expenditures price index climbed 4.6%, matching the smallest annual increase since October 2021.

Banks reduced their borrowings from two Fed backstop lending facilities in the most recent week, a sign that liquidity demand may be stabilizing. US institutions had a combined $152.6 billion in outstanding borrowings in the week through March 29, compared with $163.9 billion the previous week.

The biggest banking scare since the 2008 financial crisis will ricochet through the economy for months as households and businesses find it harder to gain access to credit. That’s the scenario facing the US after the collapse of three regional lenders, and a giant global one, over an 11-day span, according to several economists.

World

South Africa and Ghana each lifted rates by more than expected, and Thailand signaled more tightening is on the horizon. Mexico slowed its pace of hikes while Hungary’s resisted government pressure to start monetary easing. Colombia increased rates to a 24-year high and Egypt went ahead with a jumbo hike.

Bank of Japan Governor Haruhiko Kuroda changed the course of global markets when he unleashed a $3.4 trillion firehose of Japanese cash on the investment world. Now Kazuo Ueda is likely to dismantle his legacy, setting the stage for a flow reversal that risks sending shockwaves through the global economy.

Emerging Markets

President Vladimir Putin’s drive to expand Russia’s armed forces is adding to labor shortages as his war in Ukraine draws hundreds of thousands of workers into the military from other sectors of the economy. The total number taken into service is likely to have exceeded half a million, according to Bloomberg’s Russia economist Alexander Isakov.

—With assistance from Ruth Carson, Enda Curran, Alexandra Harris, Sam Kim, Masaki Kondo, John Liu, Michael MacKenzie, Reade Pickert, Chris Reiter, Zoe Schneeweiss, Mark Sweetman, Craig Torres, Alexander Weber and Anton Wilen.

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