How is the Indian economy and global economy doing?
Let’s look at some charts.
Indian manufacturing PMI showed the robustness of the Indian economy. Factory orders and production were both strong in September.
The Indian services PMI also recovered in September on the back of rising business optimism. Indian services companies continue to see strong orders and hiring remained robust.
Global manufacturing PMI saw a third successive month of contraction. Slowing global trade, falling new orders and poor business confidence dragged the PMI down.
The slowdown in manufacturing is quite sharp in Eurozone.
Chinese manufacturing PMI continued to remain in contraction territory (PMI below 50). The COVID-19 lockdowns, rising input costs, and falling international orders were the driving factors.
The rising government capital expenditure is a positive for the Indian economy at a time when the global economy is slowing.
Tax collections remain strong.
Considering the worsening global economic conditions, key Indian economic conditions remained relatively strong.
Robust credit growth is a huge positive.
Falling commodity prices are likely to help the aggregate profitability of non-financial companies.
India is an oasis in a dreary world.
We haven’t seen such a synchronized rate hiking cycle around the world in a long time.
The rate hikes are due to the historic surge in inflation across the world. Food and energy prices are driving factors behind inflation around the world–especially in Europe.
Breakdown of the volatile items like food and energy in inflation.
This has led to profound economic uncertainty around the world.
When inflation is high, and interest rates are going up all the same time, it always leads to bad things. Financial stress is growing across the world. This means widening spreads in financial markets, deteriorating liquidity, defaults, restructuring, and bankruptcies.
The latest data from IMF shows the worsening liquidity in equity and bond markets.
The rising interest rates around the world have led to a really sharp spike in bond yields.
This is a huge problem for countries with large dollar debt and poor economic conditions. If US Fed further hikes, the most vulnerable corporates, and countries will end up defaulting.
A rising dollar is a wrecking ball.
Most inflation projections are quite optimistic.
There could be unforeseen shocks that can put upward pressure on inflation like the Russia-Ukraine war.
Will the projections come true? Central banks aren’t really good at predictions. For example, here are the inflation projections of The European Central Bank (ECB). They have been consistently wrong.
Putting it all together. Here are the latest GDP growth projections from S&P. We are heading for a slowing global economy, with countries like India being the exception.