As growth prospects darken of what was once the world’s most dynamic economy, policymakers across the globe have begun to brace for economic trouble. So must India’s
China’s GDP growth forecast of 6-6.5% for 2019 is worrisome for the global economy. Although it sounds robust by world standards, doubts persist over the integrity of the country’s data.
A recent study suggests that its growth figures may have been significantly exaggerated over the past decade. But even taking it at face value, its latest projection is the weakest in nearly three decades.
The outlook also looks downbeat. London-based research firm Capital Economics reckons that China’s growth could dip as low as 2% in the next decade because both its workforce and productivity levels are in decline.
Its policy actions bear testimony to such concerns. In a speech last week, Chinese Premier Li Keqiang warned lawmakers of a “grave and more complicated environment", called for a “tough struggle" and announced $300 billion in tax cuts and corporate pension payments, much bigger than the $190 billion-worth slashed last year. China’s economy has been losing momentum despite large doses of fiscal stimulus.
The world’s worry is that the flagging Chinese economy might drag other economies down with it. Not only is China a huge exporter, it accounts for much of the world’s demand for commodities: it buys about half the world’s steel, copper and cement, for example. It has also got many countries—in South East Asia, notably—girdled in supply chain networks. Its export orientation and heavy investments in infrastructure helped it clock double-digit growth rates for much of the past three decades.
But in doing so, China piled up unsustainable amounts of debt. With global growth slowing, it has had to shift from its earlier model to one that relies more on domestic consumption. Of late, the sputters of this swerve have been compounded by trade friction with the US, roiling its prospects further.
All this comes at a time when other major countries are also losing pace. In the US, last year’s resurgence is proving short-lived. Europe’s largest economy, Germany, may be close to a recession. The UK is in trouble amid Brexit, while emerging economies such as Russia and Brazil aren’t doing too well either. In its latest report, the Organisation for Economic Co-operation and Development (OECD) revised its outlook downwards on a wide swathe of economies.
In all this, India remains a bright spot, with the government projecting 7% GDP growth this fiscal year, which would let it retain its tag as the world’s fastest-growing major economy. Last year, the Indian economy zoomed past France's to become the sixth-largest economy and could overtake the UK's this year.
These are laudable achievements. But policymakers cannot afford to get complacent, given that a global downturn is likely to impact the domestic scenario. Ever since India opened up its economy in the early 1990s, it has been vulnerable to external shocks, as seen during the 2008 global financial crisis; nor has it been possible for the economy to “decouple" itself from the rest of the world in the years since.
Worryingly, India’s record on pre-empting such crises isn’t much to write home about. Those who keep watch of global developments have been caught napping much too often. Indian policymakers should pay attention to any sign of gloom headed this way, no matter how hidden the channel. Globalization may have slowed, but plenty of it has indeed happened—enough for us to be wary of what happens elsewhere.
