Exporters optimistic despite global slowdown prospects

Last week, central banks in India, the United States, Australia, and the United Kingdom started taking actions to curb inflation. The measures included an increase in benchmark interest rates and withdrawal of excess liquidity injected during the last two years to counter the adverse economic impact of the Covid-19 pandemic. It is widely expected that the collateral damage of these steps will be lower global trade and economic growth rates.

Even before the Russian invasion of Ukraine, the global commodity prices were rising due to shipping and supply chain disruptions and vast increase in demand, powered by easy money. Since the past 10 weeks, the Russia-Ukraine war has led to a shortage of wheat, edible oils, fossil fuels, fertilisers, and some metals in the global markets. The economic sanctions have forced many countries, especially in Europe, to stop their exports to Russia. Some countries have imposed restrictions on export of essential commodities like edible oil. Stringent lockdowns in major cities in China to control the spread of Covid-19 variants have disrupted the global shipping and supply chains just when the world was recovering from the pandemic induced slowdown. Now, the aggressive actions of the central banks and governments in many countries to restrict the money supply threaten to cause global economic slowdown or even recession in some countries. That may lead to lower commodity prices over a period of time.

Indian exporters are, however, not too perturbed by the prospects of global economic slowdown. Their order books are full and many expect the export momentum to dissipate gradually in the next six months. They expect better market access in countries with whom new free trade agreements have been negotiated recently. Some traders sense greater opportunities to export food grains. Some others expect increased demand in countries neighbouring Ukraine that have received millions of refugees.  The households and businesses in the US still have enough money to sustain demand. Recent trends in the US and its allies to encourage sourcing of goods from friendly countries can help India. Even Russia, now shut off from Europe, is keen on buying goods from India. The exporters may be helped by the weakening of the Indian rupee against the US dollar. On Friday, the rupee depreciated by over 0.8 per cent to close the day at 76.93 against a US dollar. The main worry of exporters is the rising costs of raw materials and freight rates.

The Indian refiners are looking at the prospects of cheaper crude oil at discounted prices from Russia. On Wednesday, the European Union decided to phase out all imports of crude oil from Russia by the year-end. To that extent, Russia will be looking for customers in other countries to sell crude oil even at deep discounts. Other importers may be looking at cutting down on imports due to higher prices and adverse exchange rates. Indian producers automatically get increased protection when the import costs go up. To what extent this will help domestic producers is uncertain as consumption and investment led demand in India has not yet picked up. The fall in stock prices is more likely to dampen the sentiments of the large middle class that has invested in equities. 

Overall, the uncertainties in the global markets have increased. Yet, the exporters are still optimistic. How well they exploit the opportunities will determine the rate of export growth.

Email: tncrajagopalan@gmail.com