As per latest survey by IMF, inflation appears to have peaked in 2022, consumer spending remains robust and the energy crisis post Russia-Ukraine war has been less severe than initially feared. Though global economy still faces major headwinds in 2023, global growth is now expected to fall from 3.4% in 2022 to 2.9% in 2023 (vs 2.7% projected earlier). The road to full recovery with sustainable growth and stable prices has just begun and the risks appear to be more tilted towards downside.
On the back of some improvements in macro-economic conditions globally, stock markets continued their upward momentum in the last few months, delivering one of best openings to a calendar year since beginning of 2020 wherein almost all the global markets were in positive territory with many of the key indices in US and Europe delivering a return between 7-15% since the start of 2023.
Urban consumption led by higher discretionary spending in services like Travel and Tourism, healthy investment activity with bank credit expanding by 16.7% upto Jan 2023, governments enhanced focus on infra spend resulting in healthy capacity utilisation of ~75% across industries and normal monsoon + better crop prices which should result in improving rural demand are some of the major drivers which should support healthy economic activity in 2023-24.
The first half of 2022 was historically dismal for global stock markets and there is still some way to go before the storm blows over. Facing a multi-decade high in inflation, aggressive monetary policy tightening by the Federal Reserve and the effects of the Russia-Ukraine war, the US markets were down more than 20% as of June 2022. However, better than expected earnings season and cool-off in commodity prices, resulted in a sharp 10% upmove in July 2022.
Further, the recent lockdowns in China have resulted in economic activity slowing significantly but with reopening as well as monetary and fiscal easing with government announcing a slew of measures, economic growth should slowly pick up pace.
At the beginning of the year, it was unclear how far inflation would surge and how aggressively would central banks respond. However, all these issues are well understood by the markets now. This along with sharp fall in stock markets globally provide some reassurance that markets have accounted for the bad news so far and could recover (as can be seen from the recent upmove) if inflation and growth turn out better than feared earlier.
Notwithstanding the impact of 3rd wave of COVID and high inflation impacting private consumption, we expect India to remain the fastest growing economy in the world (even as major economies brace for slowdown/recession) and grow at 7.5% in FY23.