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The World Trade Organization’s Goods Trade Barometer says the global economy, hit by strong headwinds and weakening import demand, may see trade growth slow down in the closing months of 2022 and into 2023. Mint examines the implications for India.

What did the Goods Trade Barometer say?

The Barometer provides real-time information on the trajectory of world trade relative to recent trends. In its 28 November release, it said trade growth is likely to slow down in 2022 and into 2023. Reflecting a cooling demand for traded goods based on actual trade developments through the second quarter of 2022, the current reading of 96.2 is below the baseline value index and the prior reading of 100.0. The downturn in the goods barometer is in line with the WTO’s October 2022 trade forecast which predicted a merchandise trade volume growth of 3.5% in 2022 and a revised lower estimate of 1% for 2023.

 

What are the factors behind the slowdown?

Chiefly, negative readings in export orders (91.7), air freight (93.3) and electronic components (91.0). Container shipping (99.3) and raw materials (97.6) finished slightly below trend but have shown a loss in momentum. A reading of 100 separates above-trend expansion from below-trend growth. The main exception was automotive products (103.8), which was above trend due to stronger vehicle sales in the US and increased exports from Japan. With the global economy battered by strong headwinds these indices suggest cooling business sentiment and weaker global import demand.

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What is the likely impact on India’s trade balance?

With a likely fall in export earnings, and no decrease in imports of essential items like crude oil and capital goods, India’s trade deficit is set to widen. The projection is that the country’s current account trade deficit is expected to be around 3% of GDP for FY23. Foreign exchange reserves which have already depleted by over $100 billion over the last year are likely to shrink further.

What does a slowdown mean for India?

India is not an export-led economy. In FY22, 21.5% of Indian GDP depended on exports. However, in view of the poor performance of the country’s major market destinations such as the US and China, Indian exports are bound to suffer. During the subprime crisis which engulfed the entire world, India’s export-oriented sectors had to pay the price though the economy was to a large extent insulated due to a vibrant rural sector. But currently rural India is not in a strong position unlike in 2008-09.

What are the options before the govt?

India’s exports contracted 16.65% to $29.78 bn in October from $35.4 bn in September. The trade deficit widened to $26.91 bn. The government’s focus should be on strengthening the domestic market by initiating fiscal measures to boost the purchasing power of the middle classes, where the propensity to consume is high. Plus, increase and speed up capital expenditure with a focus on strengthening rural development programmes.

Pooja Misra and Jagadish Shettigar are faculty members at BIMTECH.

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