India’s Chief Economic Advisor says global economy may not go into a recession

India’s Chief Economic Advisor V Anantha Nageswaran is of the view that the global economy is not slowing as much as feared and therefore, is likely to avoid entering a widely anticipated recession. “In general, the global economy may not go into a recession or the US economy for that matter. Although Germany is not doing well, US numbers have been surprisingly resilient,” he told CNBC-TV18 on June 7.

Nageswaran, however, explained that it is not that the global economy is firing on all cylinders to say that the trade contribution will be substantially higher because of that. “It is not slowing as we might have feared, but it is not that it is coming off with a great momentum,” he said.

According to the CEA, as he has maintained in the past six to eight months, a controlled slowdown in the global economy is what could be required for India as it would have a favourable impact on energy demand and prices.

“To me those effects dominate because our services exports are relatively more resilient and the merchandise export growth will even if the global economy isn't going into recession, it is not going to be flying very high. So, on balance, I would rather live in the global economy context with a sort of a controlled restraint slowdown which is not so destabilising as to upset risk appetite,” he said.

Earlier in January, the World Economic Forum had said, a majority of the organisation's Community of Chief Economists expect a global recession in 2023, see geopolitical tensions continuing to shape the global economy, and anticipate further monetary tightening in the United States and Europe.

Almost two-thirds of chief economists believe a global recession is likely in 2023, of which 18 percent consider it extremely likely – more than twice as many as in the previous survey conducted in September 2022. A third of respondents consider a global recession to be unlikely this year, WEF said in its report.

Meanwhile, reflecting on India’s gross domestic product (GDP) growth at 6.1 percent in the January to March 2023 quarter, CEA Nageswaran said it was better-than-expected but not surprising. For the full year, the Indian economy grew at 7.2 percent in the entire FY23.

For the current fiscal 2023-24, Nageswaran believes there is a step up in the ability to achieve a 6.5 percent GDP estimate (subject to monsoon and risk factors, etc) as the momentum is sustaining based on two months data so far, he said.

“When we wrote the Economic Survey, we wrote that risks were more tilted to the downside to our number. But now I am more comfortable saying that the risk to this number is more evenly balanced rather than tilted to one side, that is the step up in the level of confidence we have about the economy's ability to achieve that 6.5 percent real GDP number that we have penciled in.”

India’s CEA noted that private consumption stood at 58.5 percent of GDP and that there is no clear momentum in private consumption. Pockets of urban consumption like hospitality, air travel, and four-wheeler sales are doing well but there are some concerns on the rural side, he said.

Nageswaran pointed out that tractor sales are exceeding well above pre-pandemic levels, whereas in rural consumption turned positive for some fast-moving low priced items as well in the fourth quarter of FY23.

He expects outward migration from villages as real estate projects and government schemes pick up. He also expects concerns on non-farm rural consumption to dissipate.