Analysts at Morgan Stanley led by Chetan Ahya, their chief economist and global head of economics, have cut the global growth forecast for 2019 and 2020. They now project global growth to slow further to hit a six-year low of 2.9 per cent by 2019-end from 3.2 per cent in the first quarter of 2019 (1Q19) and the recent peak of 4 per cent in the second quarter of 2018 (2Q18).
The developments post-G20 meeting, Morgan Stanley says, are not enough to remove the uncertainty around trade policy, given the lack of clarity so far on the critical issues. United States (US) and China had agreed to restart trade negotiations last week that broke down last month.
However, if trade tensions escalate and tariffs do go up to 25 per cent for all imports from China for at least four - six months, Morgan Stanley expects global recession to set in another three quarters.
“The impact of trade tensions on business confidence is becoming more pronounced, with most measures of business confidence deteriorating further in June. Given this backdrop, we revise down our growth estimates by 20 basis points (bps) for both 2019 and 2020 to 3 per cent and 3.2 per cent, respectively,” their analysts said in the report.
However, they expect growth in the emerging markets (EMs) to be better than that in the developed markets (DMs). As regards India, they peg the economic growth at 6.2 per cent in 2019 (7.4 per cent in 2018) and at 7.1 per cent in 2020.
For the January – March quarter, the GDP growth came in at 5.8 per cent, sharply down from 6.6 per cent in the previous quarter, well below forecasts and the slowest in over four years.
"Among the large EM economies, we expect policy rates to end 2020 100bp lower in Brazil, 50bp lower in India, 100bp lower in Indonesia, 125bp lower in Mexico and 75bp lower in Russia," the report says.
Other experts echo a similar view. Analysts at HSBC, for instance, believe India is more open and more affected by global issues than many believe. That apart, India's exports have been sluggish, and the complex set of issues dragging global growth lower are likely to impact it even more.
“To be fair, growth could inch up in 2H2019 with election-related uncertainties fading, and the RBI easing. But that can only take growth closer to 7 per cent, from sub-6 per cent in the quarter ending March 2019. Anything higher will need reforms which augment capital and labour," says Pranjul Bhandari, HSBC's chief India economist in a co-authored report with Aayushi Chaudhary and Deep Nagpal.