The impact of a global recession

Jan 4, 2023·

2 min read

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In a highly globalised world, India cannot escape unscathed as countries around it witness a slowdown. While India will feel the ripples of a global slowdown, several factors will help lessen the blow, economists say. “Healthy corporate balance sheets thanks to deleveraging and healthy bank balance sheets due to low non-performing assets — these will drive India’s growth over its peers,” says Dipti Salétore - Deshpande, Principal Economist at CRISIL Ratings. India’s forex reserves, albeit rapidly shrinking, have helped as well, says Rajani Sinha, Chief Economist at CareEdge.


Elon Musk has warned that the US might go into recession next year!

And he’s not alone. Economists worldwide have started warning against the fear of a Global recession.

The recession probability index published by the US Fed that looks at the spread between 3-year and 10-year treasury yields shows a heightened Recession fear. Other economists using several other statistical models and prediction techniques based on economic data to forecast recession are also seeing warning signs.

Why is a recession so probable?

1️⃣ The geopolitical shock caused by Russia’s war on Ukraine has been the most significant catalyst of global turmoil as it has destroyed the supply chain of the largest commodity exporters.

2️⃣ The shock in commodity prices has crippled the European economy and impacted many emerging nations.

3️⃣ The macroeconomic challenge of heightened inflation has led to Federal Banks raising rates that have already started hurting growth.

The Indian market, on the other hand, remains robust and commands a premium valuation over other emerging markets. As a result, the valuation multiples that the Nifty is at are not the numbers that hint at a likely escalation but, in fact, hint at solid growth.

The Nifty deserves to command a high multiple for several reasons - India becoming an alternate manufacturing destination for the world, India leading in the public digital and financial infrastructure space, domestic focus on job-creation and ease of doing business.

The impact of slowing growth has already been felt in India. Still, there is a resolve that the Indian market recovering from the pandemic with strong consumer demand and banking balance sheets might get dented but will not drown!

#BigIdeas2023 #recession2023

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