Dear Readers,

Monday’s ExplainSpeaking piece looked at the fly in India’s GDP data ointment. Thanks to the trend of weak growth in private consumption (that is, the money spent by people in their personal capacity), economists and analysts were unclear which way India’s growth will go from here. Will poor consumption hold back GDP growth or will its data be revised to reflect that it had been driving the GDP growth.

Today, we will look at how experts are viewing the outlook on other big economies.

The TABLE alongside is sourced from Morgan Stanley’s latest forecast report. It looks at the expected trends for both GDP (Gross Domestic Product) and inflation (calculated by Consumer Price Index or CPI).

For Indian readers, who are used to a financial year that starts in April and ends in March, it is important to note that in this Table, the quarters are aligned to the calendar year. As such the first quarter or Q1 of 2023 refers to the months of January to March. In Indian economic terminology, this would have been referred to as Q4 of Financial Year 2022-23.

There are 5 takeaways from these forecasts:

1. Both global growth as well as global inflation is likely to moderate through 2023 and 2024.

2. Some of the wealthiest countries in the world are in for a tough time. The G10 countries are likely to witness rather anaemic growth rates. The G10 grouping refers to, oddly enough, 11 industrialised countries. The member countries are Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States. As the names suggest, the G10 refers to some of the wealthiest countries (in per capita income terms) in the world.

3. The United Kingdom, the economy India overtook last year in terms of overall GDP, will continue to struggle and is unlikely to manage even a GDP growth rate of 1% in the next year and a half.

4. China, on the other hand, is expected to progressively recover its growth momentum. Even so, it is unlikely to challenge India in terms of GDP growth rates. Readers should, however, remember that the Chinese economy is almost five-times India’s size (in terms of GDP). So when China grows at 5% in a year, it adds $1 trillion to its GDP, which is already around $20 trillion. To match the same level of additional GDP, India will have to grow at more than 25% because India’s existing GDP base is less than $4 trillion.

5. On the inflation front, it looks like US inflation is likely to come fairly close to the US central bank target of 2% by the end of 2023. This would be good news because the US central bank actions tend to have an oversized impact on economies across the world including India. If inflation is under control in the US, India can look forward to a more stable interest rate scenario, which, in turn, will help business plan and invest.

See you tomorrow,

Udit