The Covid 19 pandemic had sunk the world economy into the deepest recession in decades and has taken unpreceded toll on human life and health conditions. The outbreak caused the huge shocks to economies around the globe. As the world started to recover from Pandemic shocks, geopolitical conflict, Russia`s Ukraine invasion hit the World in early 2022. Russian invasion over Ukraine not only triggered large scale humanitarian migration but also impacted the economic growth rates and created downside risks to the global economy. The direct impact was decline in slowdown in remittances flows and indirect impact was rise in food, fuel and fertilizer prices leading to risk of food security and rising unemployment and poverty in many low income countries.

In fact, last 5 years (2018-22) were not favorable for the world economy. In 2018 a trade war between China and US impacted global growth trajectory and before the recovery happened the Pandemic Covid-19 started impacting the economies from the later months of 2019. It started in China in 2019 and spreaded in almost all countries in 2020 and impacted crores of lives and vanished trillion of dollars from the global economy. Before it recovered during 2021, 2022 the, geopolitical conflict between Russia and Ukraine impacted the recovery process and pulled many economies again in the fragile economic zones. The sky rocketed commodity prices resulted hyperinflation in global ecosystem and policy makers and Central banks increased the policy rates to address inflationary pressures going out of control.

World Economic Outlook

The global growth rate for the World economy had come down to -2.8% due to Pandemic outbreak in 2020. In 2021 as the world economy began to recover and the growth rate showed a significant rise to 6.3% as many economies paved their ways to recovery. However, when the world was recovering, geopolitical conflict out broke in 2022, world economic growth again declined to 3.4% in 2022. According to IMF, the projected growth rates for the world economy are 2.8% in 2023 and 3% in 2024 and 3.2% in 2025.

According to the recent IMF Global Economic Prospects, the Global growth is projected to decelerate sharply in 2023, to its third weakest pace in nearly three decades, overshadowed only by the 2009 and 2020 global recessions. This reflects synchronous policy tightening aimed at containing very high inflation, worsening financial conditions, and continued disruptions from the Russian Federation’s invasion of Ukraine. Investment growth in emerging market and developing economies (EMDEs) is expected to remain below its average rate of the past two decades. Further adverse shocks could push the global economy into yet another recession.

India’s Economic Outlook

The Indian economy has recovered quickly from Pandemic and achieved the Pre-Pandemic economic level. The drivers of economic growth such as solid demand, private investments and capital expansion are performing well above the pre-pandemic levels. The recovery in employment creation with increasing growth of Government CAPEX and revival of Private CAPEX indicate that economic resilience of the country would be more robust in the coming years. The mitigating strategies of the Government to tackle the impact of Russia-Ukraine conflict are appreciable as inflation has come down significantly and economic growth remains above 7%.

Despite the global headwinds economy is able to grow at 7.2% in 2022-23. The growth of services, construction and electricity sectors is highly appreciable. The growth of manufacturing should also become strong in the coming times with the support of enhanced Ease of Doing Business, decriminalization of minor offenses and robust single window system across the states. As WPI inflation has come down below 1%, the increased price cost margins of producers will enhance production possibilities of the producers and boost growth of manufacturing.

Economic Indicators so Far

The growth of Gross Fixed Capital Formation at 34% of GDP at constant prices is highly inspiring and indicates an expanded capex in the economy with strong possibilities of employment creation. India's economic resilience is consistently increasing and India remains a bright spot in the global ecosystem. Despite the global headwinds, economy will continuously grow as one of the fastest among the leading economies.

Going ahead, despite the global economic challenges such as recessionary conditions in some of the advanced economies, we look forward to a more resilient, strong and sustained economic growth trajectory in the coming years. The rebound in consumption segment and consistent revival of private investments will support the economy to move forward with a strong and sustainable growth momentum. The economy is expected to grow at around 6.5% in FY 2023-24.

Among the top 10 leading economies 8 economies will perform below their growth rate levels of pre pandemic level of 2019. India is a bright spot in the global ecosystem with projected growth rate of 6.1 in 2023, 6.8 in 2024, and 6.8 in 2025. The average growth rate of India will be 7% during 2021 to 2025 as compared with China at 5% during the same period.

Table: Growth rates of top 10 leading economies (2021-25)

Continued process of economic reforms in India would further strengthen the economic fundamentals of the country to maintain steady growth trajectory. Strengthening of India’s connectivity with Global Value Chains (GVCs) will help to improve supply side bottlenecks and reduce costs of doing business. Enhanced competitiveness of the economy will attract more and more investments and help to create more employment opportunities for the growing young population in the country.

(Dr. S.P. Sharma is Chief Economist & Director of Research • PHDCCI (PHD Chamber of Commerce and industry, India)

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