India Key to Global Growth: McKinsey

In spite of downgrades to India’s real GDP growth projections, the country could well contribute around 15% to the global economic growth during the year, says a note from McKinsey. The report said growth in China and India would outpace the developed economies, which remain in the throes of uncertainty. 

“Demand conditions in India remain sanguine, with urban consumption rising and rural demand indicators improving. The Reserve Bank of India revised its real GDP projections for 2022–23 to 6.5%, well above the IMF’s updated projection of 5.9%,” says McKinsey in its Global Economics Intelligence executive summary. 

It further notes that inflation has shown signs of moderating across multiple regions and countries but is still on the higher side. This means central banks would continue on their path of interest rate interventions for some more time. And these hikes are weighing on growth projections resulting in a somewhat patchy picture for most of the world. 

Developed world could witness more strife

Among the developed economies, the Federal Reserve revised down its latest economic growth projections for 2023 and 2024 to 0.4% and 1.2%, respectively. In Europe, the IMF has reconfirmed previous projections for 2022’s growth rate at 3.5% but revised up its 2023 outlook by 0.1 percentage point. 

The report further notes that rate hikes have also caused volatility in the banking sector with existing holdings of government bonds falling in value and leaving the smaller entities vulnerable as the value of their assets decline further. This could potentially generate losses when they are forced to sell these securities. 

Banking challenges makes things difficult

This volatility in the banking sector is likely one of the factors to have affected wider economic sentiment. McKinsey’s latest snapshot of global economic conditions surveyed executives twice in March: immediately before the upheavals in the banking sector, starting with the closure of SVB, and then again three weeks later. 

In early March, respondents were more positive than they had been in several quarters: 40% said that global economic conditions had improved in the previous six months, the first time in a year that respondents were more likely to report improvements than declines. And 45% said that they expected global conditions to improve in the months ahead, while only 28% predicted that conditions would worsen. 

However, by the end of the month, that optimism had fallen away. Respondents were much less positive than they were in early March about current global conditions and the global economy’s prospects—though they were still more upbeat than they had been in the previous quarter, the report added.

The BRIC grouping seems a divided house

The report also made specific references to the remaining three entities of the BRIC grouping. It noted that the Chinese economy had a strong start in the first quarter of 2023 with GDP accelerating to 4.5% above market estimates. Fixed-asset investment, housing sales, and new social financing expanded faster compared to Q4 of 2022. However, trade remained weak though the services sector accelerated to 5.4% year-on-year with agriculture and industry stabilizing at 3.7% and 3.3% respectively. 

In Brazil, the report said inflation continued its downward trend and consumer sentiment in relation to both current and future economic situations showed signs of improvement. Consumer confidence rose to 87 in March from 84.5 in February though it continues to remain below the 100-point threshold indicating pessimism. 

As for Russia, the GDP decline, driven by domestic consumption and net trade, appears to have led to stagnation. The report notes that the 2023 outlook depends on government support and trade as the domestic demand could remain weak, in spite of inflation falling sharply below the 4% mark. Overall the economy declined by 2.1% though government spending and fixed investments could provide some relief for the rest of the year.