Equity, Diversity and Inclusion

India's economy stutters, Eurozone inflation falls less than expected, and other economy stories you need to read this week

Economy updates: India's year-on-year economic growth fell to 4.4% in October-December.

Economy updates: India's year-on-year economic growth fell to 4.4% in October-December. Image: Adam Cohn/Flickr

Ian Shine
Senior Writer, Forum Agenda
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  • This weekly round-up brings you the latest stories from the world of economics and finance.
  • Top economy stories: India's economic growth slows; Eurozone inflation falls less than expected; Ukraine predicts GDP growth this year; China becoming increasingly ambitious with a 2023 growth target.

1. India's economy stutters, but remains on track to lead world growth

India's economic growth slowed further in October-December, but the government is retaining its growth forecast of 7% for 2022-2023 – a level that would make it the world's fastest-growing major economy.

Year-on-year growth in Asia's third-largest economy fell to 4.4% in the quarter from 6.3% in July-September. The slowdown resulted from an easing of pent-up pandemic-era demand, continuing weakness in the manufacturing sector, and the fading of the pandemic's low base effect.

The IMF and the World Bank project India as the fastest-growing major economy in 2023, but India has recorded slower economic growth so far.
The IMF and the World Bank project India as the fastest-growing major economy in 2023, but India has recorded slower economic growth so far. Image: Reuters

The manufacturing sector shrank by 1.1%, marking a second straight contraction and reflecting lower profit margins and weaker exports as countries struggle with inflation. Declining global demand and monetary tightening by the Indian central bank could further drag down economic growth this year, economists at the bank have warned.

But India's chief economic advisor, V. Anantha Nageswaran, says the country is still on track for 7% growth and that 4.0-4.1% is possible in January-March. The International Monetary Fund and the World Bank project India as the fastest-growing major economy in 2023.

India's private consumer spending, which makes up around 60% of GDP, rose by just 2.1% year-on-year in the December quarter, down from the revised 8.8% growth in the previous quarter. And capital investment rose 8.3% compared to a revised 9.7% for July-September.

Some economists suggest that these numerous revisions to past data are making the slowdown in India's GDP growth look more severe than it actually is. The revisions have created a higher base for October-December data to be measured against, they say, adding that growth is evolving as expected and may not sway the central bank to pause rate hikes.

2. Eurozone hit with higher-than-expected inflation

Eurozone inflation fell less than expected in February, and underlying price growth surged, reinforcing the case for the European Central Bank (ECB) to keep raising interest rates at a brisk pace.

Consumer price inflation in the bloc eased to 8.5% in February from 8.6% a month earlier, as a big fall in energy costs offset a price surge in nearly all other areas. But it still came in above expectations for 8.2% in a Reuters poll of economists.

Although overall inflation is well below the double-digit highs of October, it continues to broaden, fuelling fears that the earlier surge has seeped into the economy via so-called second-round effects, making it more difficult to root out. Underlying inflation, which filters out volatile food and fuel prices, jumped to 5.6% in February from 5.3% a month earlier, putting it well above expectations for a steady reading.

Headline inflation and its main components. economy
Eurozone inflation is falling when it comes to energy, but proving stubborn in other areas. Image: European Central Bank/Eurostat

Price growth in services, the biggest component in core inflation, accelerated to 4.8% from 4.4%. This is a big worry, as the sector is especially sensitive to wage growth, and the rise suggests an acceleration in labour costs.

However, ECB Chief Economist Philip Lane says the bank is starting to win its fight against inflation. He says that higher interest rates are working their way through the economy, and this is weighing on the price of services and other core goods, excluding fuel and food.

The ECB has promised another half-percentage-point rate hike in interest rates this month, and Lane says the bank will not end rate hikes until it is confident price growth is heading back towards 2%. The Bank's President, Christine Lagarde, says the rate increases may need to persist beyond this month.

3. News in brief: Stories on the economy from around the world

Ukraine's central bank predicts that the country's GDP will grow by 0.3% this year, while the economy ministry forecasts 3.2% growth. However, access to reliable power supplies is proving an obstacle for many businesses. The war has also devastated key sectors – Ukraine was the world's 14th largest steel producer before the war, but leading firms have had facilities destroyed and been declared bankrupt. Agriculture accounted for 12% of GDP before the war, but grain exports have fallen 29.3% on the year in the current season.

Prices for wheat futures have fallen to their lowest in 17 months, thanks to strong near-term supplies, Bloomberg reports. The most active contract has dropped by 1.6% to reach $7.10 a bushel, and wheat prices are on course for a 6% decline this month, which would be the biggest monthly dip since November. World food prices fell in January for the 10th month in a row.

China's manufacturing activity expanded at its fastest pace in more than a decade in February, smashing expectations as production soared following the lifting of COVID-19 restrictions late last year. The manufacturing purchasing managers' index (PMI) shot up to 52.6 last month, from 50.1 in January, with any number above 50 indicating expansion.

And China is becoming increasingly ambitious with its 2023 growth target, aiming as high as 6% to boost investor and consumer confidence and build on a promising post-pandemic recovery.

Japan's lower house of parliament has passed a record JPY114.4 trillion ($839.3 billion) budget for the next fiscal year. The move is likely to further increase the country's debt – Japan already has the world's highest debt-to-GDP ratio. The budget features record military spending as well as record welfare spending for a fast-ageing population.

South Korea's factory activity contracted for an eighth month in February, highlighting weak domestic and global economic conditions. But the government is promising to work to boost exports to support the economy. South Korea's official forecast is for exports to drop 4.5% in 2023 compared with last year. Exports for January and February fell 12% on the year.

Retail theft has hit record levels in Australia, underscoring concerns raised by analysts and social researchers that surging living costs will drive up crime. The theft is putting pressure on grocery chains that are already struggling with soaring supply costs and freight blockages.

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British grocery inflation hit a new record of 17.1% in the four weeks to 19 February, dealing another blow to consumers struggling with a cost-of-living crisis. Market researcher Kantar says UK households now face an additional £811 ($978) on their annual shopping bills if they don't change their behaviour to cut costs.

The United Arab Emirates' economy expanded by 7.6% last year, according to a senior official. This is about double the rise recorded in 2021, as the Gulf state rebounded sharply from the pandemic. But a slowdown is forecast this year because of a more uncertain oil price outlook and a challenging global macroeconomic environment.

Australia's economy grew at its weakest pace for a year in October-December as strong trade was offset by rising interest rates and high inflation. Real GDP rose by 0.5%, compared with 0.7% in the previous quarter. Economic output excluding international trade fell 0.5%, as rising prices eroded consumers' purchasing power and led them to save less.

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Global ratings agency Moody's has cut Pakistan's sovereign credit rating by two notches amid international loan negotiations, saying the country's increasingly fragile liquidity "significantly raises default risks". The cash-strapped country is in talks with the IMF to secure a $1 billion loan.

Thailand's economy is expected to grow 3.8% this year, helped by a rebound in the vital tourism sector, while inflation should cool to its target range, its finance minister says.

4. More on the economy on Agenda

Globalization needs a shake-up in the post-COVID world, and purpose-led globalization should be the new name of the game. Capital markets will have a key role to play in enabling this new phase of globalization.

Discussions about a common currency for Latin America are evidence of efforts to shift away from dependence on the US dollar – a move that is a feature of deglobalization. Policy-makers and ministers need to work together to foster cooperation without compromising individual national goals.

How have prices for consumer goods and services changed in the US over the past 20 years? This chart has the answers.

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