US and Euro zone headed for recession but India will remain untouched by it US Fed will decide interest rate today
90 central banks increased rates this year
About 90 central banks have increased interest rates this year. Of these, half have increased by at least 0.75 per cent in one go. Most have done this more than once. As a result, monetary policy has become the tightest in 15 years. According to JP Morgan, the current quarter will see the biggest rate hike by major central banks since 1980 and it is not going to stop here. Today the US Fed may increase key interest rates by 0.75 percent for the third time.
How does it affect the economy
There is a fear of slowing down the growth rate of the economy due to increase in interest rates. Economist Professor Arun Kumar says, “Raising interest rates reduces the liquidity (inflow of money) in the market, which affects the growth rate of the country. If growth is low, then problems like unemployment can increase. Per capita income will also come down. The economies of countries are already affected due to several reasons including the corona pandemic and geopolitical issues. The increase in interest rates will have a bad effect on them. This could invite a worldwide recession.
Recession in America and Europe, will it affect India too?
The US and Euro area may be heading towards recession, but it is not expected to affect India. Global rating agency S&P said this on Tuesday. He said that this is because the Indian economy is not very much connected with the global economy. Paul F Grunewald, Chief Economist and Managing Director at S&P Global, told reporters, “The Indian economy is very different from the global economy because of its massive domestic demand. However, India is a net importer of energy. You have sufficient reserves of foreign exchange. At the same time, your companies are also making good profits.” Grunewald said that India was never fully connected to the global economy. Hence it is comparatively independent from the global markets. He said that if there is a recession in the US and Europe, a lot will also depend on the inflow of global funds.
ADB lowers growth forecast in Asia
The Asian Development Bank (ADB) has downgraded the growth forecast for the Asian region. This has been done because of the Ukraine war, rising interest rates and slowing down of China’s economy. ADB has lowered its growth forecast for developing Asian economies to 4.3 per cent from the earlier 5.2 per cent. The bank has reduced the growth rate forecast for 2023 from 5.3 percent to 4.9 percent.
Other Asian countries will be ahead of China for the first time in 30 years
ADB economists said it would be the first time in three decades that other developing Asian economies would grow faster than China. China’s economy is projected to grow at 3.3 percent this year. This is far lower than the 2021 estimate of 8.1 per cent and ADB’s April estimate of five per cent.
India and Maldives will be at the forefront of Asia
The economic growth of India and Maldives is projected to be the fastest. ADB estimates that the Indian economy will grow at 7 per cent and that of Maldives at 8.2 per cent. At the same time, Sri Lanka’s economy is expected to decline by 8.8 percent.
Inflation down in Asia
The ADB forecast for inflation in Asia is less severe than forecast for the US and other economies. It is projected to remain at 4.5 per cent for 2022 and at 4 per cent for the next year. The ADB report said the growth momentum of most Southeast Asian economies would continue as regions opened up to tourism and demand improved.
(With inputs from PTI and Bloomberg)