New Delhi, Nov 25 (KNN) The Indian exports might be dampen due to the global slowdown driven by the confluence of stubbornly high inflation, rising borrowing costs and geopolitical tensions, the Finance Ministry said in its latest monthly economic review report on Thursday.

India’s goods exports contracted for the first time since February 2021 in October, and the Ministry said that the slowdown in China has also affected global trade, ‘exacerbating the effects of high inflation and borrowing costs’. “China’s exports contracted in October 2022, the first time since May 2020, as local curbs and lower global demand impacted the country’s trade,” it pointed out.

Although the global uncertainty might stifle the exports, but the ‘resilient’ domestic demand and a ‘re-invigorated’ investment cycle will push the economy’s growth and spark a rebound in jobs in coming months, it added.

Arguing that recent inflation pressures have been driven more by local factors, including higher food prices, than imported reasons, the Ministry asserted those pressures are also set to dampen, thanks to easing international commodity prices and the arrival of the Kharif crop. India’s retail inflation has been over 7 per cent in all but two months since April 2022, and stood at 6.8 per cent in October. 

The monthly review of the economy for the month of October also emphasised that demand under the rural employment guarantee scheme (MGNREGS) has fallen to its lowest level this year last month, adding that the sharp rise in tractor sales in September and October reflects ‘improved sentiments and an expected increase in crop area sown’.

“Hiring by firms is likely to witness an improvement in upcoming quarters driven by a rebound in new business gains as firms continue to benefit from the lifting of the COVID-19 restrictions and the possible sustaining of the sales momentum witnessed during the festival season,” the review projected. 

The recent financial upheavals in crypto exchanges and connected intermediaries, the review noted, is ‘a reminder of unknown unknowns’ even as the global economy continues to navigate turbulence, with persisting macroeconomic uncertainty. 

“Despite significant increases in policy rates and quantitative tightening measures adopted by central banks worldwide, inflationary pressures remain stubbornly high. These factors have, in turn, caused multiple downward revisions to global output, with the level of economic activity gradually declining and stagflation risks rising,” it pointed out.  

While higher interest rates may tip economies into recessions if central banks stay their course, higher borrowing costs may expose fault lines in their financial systems which will further accentuate global macroeconomic stress, the Ministry cautioned. 

The impact of increased borrowing costs and stubbornly high inflation is beginning to show in multiple leading indicators of global economic activity, it acknowledged.

Rising interest rates have also caused sovereign bond yields in advanced economies to spike this year, while yields in emerging market economies have mainly remained stable over this period. 

“In India’s case, this has translated to a lower risk premium, with the spread between the U.S. 10-year yield and India’s 10-year yield falling from 478 basis points (bps) to 331 bps between January and October 2022,” the Ministry pointed out. One basis point equals 0.01 per cent. (KNN Bureau)