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In one stroke, the World Bank has slashed its global growth forecast for 2023 to 1.7 per cent from its June estimate of 3 per cent. The Global Economic Prospects (GEP) report of 2023 highlighted that the world economy is perilously close to tipping into recession. Worse, it comes within three years after the pandemic-induced slump.
Global recession and the spillovers from weakness in the US, Euro region, China, the Russia-Ukraine war and the pandemic on growth have of course been topics of hectic discussion. But the report adds that elevated inflation, heavy indebtedness and growth pangs may weaken investment and trigger corporate defaults. “Further negative shocks—such as higher inflation, even tighter policy, financial stress, deeper weakness in major economies, or rising geopolitical tensions—could push the global economy into recession,” states the GEP report.
Meanwhile, growth projections are downgraded for almost all advanced economies and about two-thirds of emerging markets and developing economies (EMDEs) in 2023, and for about half of all countries in 2024. While India is pronounced to be among the fastest growing nations, the World Bank has marked down growth in 2022-23 by 0.6 percentage point since June, to 6.9 per cent.
This comes at a time when the Indian government is faced with a critical Union Budget-- critical as on the one hand, it would determine how the country would confront mounting external risks and on the other hand, it is the final full-year Budget before national elections. A report by Goldman Sachs highlights how the Budget will have to strike a fine balance between fiscal prudence and spending priorities. Given the global slowdown, it can ill-afford to pull back capital expenditure and manufacturing incentives.
Further, the Budget needs to address concerns over unemployment, inflation, rising inequalities in income and wealth and rural and MSME distress, says Sashi Sivramakrishna in this article. Read another interesting piece here, where Rajrishi Singhal highlights the three challenges the Budget faces to marshal banks to keep the funding tap on.
Will India sail through 2023, a year where clouds of gloom seem to be darkening across world economies? There is no immediate answer to this question. In this context, Martin Wolf’s article in Financial Times (exclusively for MCPro subscribers) titled ‘The threat of a lost decade in development,' paints a rather depressing picture. A way has to be found to resolve debt problems that are emerging for the world’s most vulnerable, it says, echoing the World Bank report’s stress on rising indebtedness across economies.
Watch this space for more articles and expert opinions on Budget 2023 expectations....
Investing insights from our research team
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Budget 2023: The case for lowering tax rates