By admin March 27, 2019 10:56

The Big Picture – Global Slowdown Asian markets were mixed in early trading as investors remained unnerved about the global economic outlook. U.S. Treasury yields saw little change as the bond rally paused, while new data showed China’s industrial profits dropped sharply in the first two months of the year, raising worries of a slowdown. The U.S. and China will resume high-level trade talks in Beijing. Despite global slowdown fears, Indian markets rallied to regain all of losses. For domestic markets, the hope is that emerging markets like India may be safe-haven investing options amidst all the chaos about US slowdown and Brexit confusion. What is the state of the global economy?

  1. Europe is pretty much on the decline.
  2. Apart from Brexit, there is a slowdown in every major as well as medium size economy in Europe.
  3. The escalation of trade war between US and China will hurt both economies.
  4. China is already reeling under the pressure and experiencing a slowdown.
  5. US is not experiencing the full damaging effect of the relationship with China as the exploration of shale reserves have been revived and employment data also looks fairly positive on account of job creation.

Impact of US – China trade war on the global economy China’s effect

  • China is a $12 trillion economy.
  • The imports and exports make up 30% of the GDP of China.
  • Due to the US-China trade war, China’s imports have slowed down considerably.
  • The US government had announced that China should change its subsidies regime and the running of state owned enterprises.
  • Therefore there is an uncertainty over whether there would be a quick resolution of the problem by the United States or whether it would drag on.
  • The countries dependent on China as part of the value chain have also been affected. The countries which are dependent on China for raw materials are all affected.
  • South East Asian economies and the countries in South America and Africa which supply raw materials have been affected.

Effect of US

  • It is being said that US – China trade war has affected atleast 0.1% of GDP as the tariffs imposed by the US on Chinese products have been passed onto the US consumer which has led to inflation in the US.
  • Also the US has been the engine of growth for the world economy for more than 50 years.
  • US has been a consumer of products and services produced in different parts of the world.
  • It has also been at the forefront of technology.
  • If growth reduces to 2.1% of GDP from the earlier 3% as expected, it would not be able to provide the fillip to the global economy to increase the production of different kinds of products and services. This in would produce a spin off effect on the countries supplying the goods and services.


  • Italy is under recession.
  • Germany is under the brink of recession.
  • Also Janet Yellen, a former Chairperson of the Federal Reserve, has pointed out that employment in US is mainly in retail and low paying services which is mainly part time employment. People have stopped looking for work as they have become disheartened. She has also said that the unemployment rate is perhaps twice as much as that is being quoted. This means the consumption or purchasing power of the people is stagnant or going down in real terms.

Most worrying factors

  • There seems to be nervousness as far as economic revival in the US is concerned.
  • Investors are expecting a recession as bond yields have inverted recently as has been the norm always.
  • This is the longest bull run that US has seen from 2008 onwards. People have expected the same to end soon which is happening now and that fear has gripped the market.New demands in the housing sector have also dropped.
  • Therefore it is clearly visible that the US market is gearing for a slowdown whose results are not unknown.
  • With the growth slowing down in China and other countries like Germany and Brexit in Britain, a flat growth scenario is expected.

Opportunity for India

  • There has been capital inflow into emerging economies like India.
  • The likelihood of a stable government in India has also increased the possibilities for more inflows.
  • Therefore India should be prepared to channel the inflows into productive investments.
  • India would also be able to obtain commercial borrowing at better interest rates for investments in India.
  • If India can keep its fiscal situation under control, it can focus on building the socio-economic infrastructure in India with the heavy inflows that would come in as exports seem to have a pessimistic outlook. Challenges
  • Consumption expenditure usually rises soon after the elections. This would give a fillip to GDP post elections.
  • The oil prices, though are not expected to rise with the slowdown in the economy, should be watched for.
  • Indian exports have remained stagnant for 7-8 years. If it shrinks, then there would be implications in terms of lost employment.

Way forward

  • The next government should put in place a policy framework which can channelize the inflows during the slowdown to meet our infrastructure deficit.
  • About 83% of India’s energy needs are met through imports. So, the government should use the opportunity of stagnant oil prices to reform the energy sector to reduce our imports on oil.

Read Also: –A Relief for Housing Projects in 34th GST Council Meeting

By admin March 27, 2019 10:56