Consistently Getting Better Than Yesterday – Everyday

Read Full Magazine Here. The global economy is experiencing a number of turbulent challenges. Inflation higher than seen in several decades, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.

BL: What is your insight on Global economy?

Dr. Seetharaman: The global economy is experiencing a number of turbulent challenges. Inflation higher than seen in several decades, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Normalization of monetary and fiscal policies that delivered unprecedented support during the pandemic is cooling demand as policymakers aim to lower inflation back to target. But a growing share of economies are in a growth slowdown or outright contraction. The global economy’s future health rests critically on the successful calibration of monetary policy, the course of the war in Ukraine, and the possibility of further pandemic-related supply-side disruptions, for example, in China.

Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic and reflects significant slowdowns for the largest economies: a US GDP contraction in the first half of 2022, a euro area contraction in the second half of 2022, and prolonged COVID-19 outbreaks and lockdowns in China with a growing property sector crisis. About a third of the world economy faces two consecutive quarters of negative growth. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. Upside inflation surprises have been most widespread among advanced economies, with greater variability in emerging market and developing economies.

BL: What is your insight on Advanced  economies?

Dr. Seetharaman: For advanced economies, growth is projected to slow from 5.2 percent in 2021 to 2.4 percent in 2022 and 1.1 percent in 2023. With the slowdown gathering strength, growth is revised down compared with the July WEO Update (by 0.1 percentage point for 2022 and 0.3 percentage point for 2023). The projected slowdown and the downgrades are concentrated in the US and European economies. Growth in the United States is projected to decline from 5.7 percent in 2021 to 1.6 percent in 2022 and 1.0 percent in 2023, with no growth in 2022 on a fourth-quarter-over-fourth-quarter basis. Growth in 2022 has been revised down by 0.7 percentage point since July, reflecting the unexpected real GDP contraction in the second quarter. Declining real disposable income continues to eat into consumer demand, and higher interest rates are taking an important toll on spending, especially spending on residential investment.

In the euro area, the growth slowdown is less pronounced than that in the United States in 2022 but is expected to deepen in 2023. Projected growth is 3.1 percent in 2022 and 0.5 percent in 2023. There is an upward revision of 0.5 percentage point since July for 2022, on account of a stronger-than-projected second-quarter outturn in most euro area economies, and a downward revision of 0.7 percentage point for 2023. This average for the euro area hides significant heterogeneity among individual member countries. In Italy and Spain, a recovery in tourism-related services and industrial production in the first half of 2022 has contributed to projected growth of 3.2 percent and 4.3 percent, respectively, in 2022. However, growth in both countries is set to slow sharply in 2023, with Italy experiencing negative annual growth. Projected growth in 2022 is lower in France, at 2.5 percent, and in Germany, at 1.5 percent, and the slowdown in 2023 is especially sharp for Germany, with negative annual growth. Weak 2023 growth across Europe reflects spillover effects from the war in Ukraine, with especially sharp downward revisions for economies most exposed to the Russian gas supply cuts, and tighter financial conditions, with the European Central Bank having ended net asset purchases and rapidly raising policy rates by 50 basis points in July 2022 and 75 basis points in September 2022. At the same time, a number of factors have contributed to a less rapid near-term slowdown than in the United States, including policy interest rates at still lower levels and, in a number of European economies, NextGeneration EU funds supporting economic activity.

In the United Kingdom too, a significant slowdown is projected. Growth is forecast at 3.6 percent in 2022 and 0.3 percent in 2023 as high inflation reduces purchasing power and tighter monetary policy takes a toll on consumer spending and business investment. This forecast was prepared before the announcement (September 23) of the sizable fiscal package and incorporates a less substantial fiscal expansion. The fiscal package is expected to lift growth somewhat above the forecast in the near term, while complicating the fight against inflation. Growth in Japan is expected to be more stable at 1.7 percent in both 2021 and 2022 and 1.6 percent 2023, with a downward revision for 2023 since July of 0.1 percentage point. The revisions reflect mainly external factors, with a negative shift in the terms of trade (ratio of export to import prices) from higher energy import prices as well as lower consumption as price inflation outpaces wage growth.

The changes in the current country leadership and the new government of Prime Minister Rishi Sunak executed a screeching U-turn from his predecessor recently, unveiling an economic plan that calls for billions of dollars of tough spending cuts alongside steep tax increases, in a package designed to stabilize skeptical financial markets and tackle soaring inflation.

BL: What is your insight on emerging economies?

Dr. Seetharaman: Growth in the emerging market and developing economy group is expected to decline to 3.7 percent in 2022 and remain there in 2023, in contrast to the deepening slowdown in advanced economies. The forecast for 2022 is modestly upgraded from the July forecast, reflecting a smaller-than-expected contraction in emerging and developing Europe.

In emerging and developing Asia, growth is projected to decline from 7.2 percent in 2021 to 4.4 percent in 2022 before rising to 4.9 percent in 2023, with a 0.2 percentage point and 0.1 percentage point downgrade since July for 2022 and 2023, respectively.

The revisions reflect the downgrade for growth in China, to 3.2 percent in 2022 (the lowest growth in more than four decades, excluding the initial COVID-19 crisis in 2020). COVID-19 outbreaks and lockdowns in multiple localities, as well as the worsening property market crisis, have held back economic activity in China, although growth is expected to rise to 4.4 percent in 2023.

The outlook for India is for growth of 6.8 percent in 2022––a 0.6 percentage point downgrade since the July forecast, reflecting a weaker-than-expected outturn in the second quarter and more subdued external demand––and 6.1 percent in 2023, with no change since July.

For the Association of Southeast Asian Nations (ASEAN)-5 economies, projected growth in 2023 is revised down to reflect mainly less favorable external conditions, with slower growth in major trading partners such as China, the euro area, and the US; the decline in household purchasing power from higher food and energy prices; and in most cases, more rapid monetary policy tightening to bring inflation back to target.

In emerging and developing Europe, growth is projected at 0.0 percent in 2022 and 0.6 percent in 2023, with a 1.4 percentage point upgrade for 2022 and a 0.3 percentage point downgrade for 2023, compared with the July forecast

Growth in Latin America and the Caribbean is forecast at 3.5 percent in 2022 and 1.7 percent in 2023.

Growth in the Middle East and Central Asia is projected to increase to 5.0 percent in 2022, largely reflecting a favorable outlook for the region’s oil exporters and an unexpectedly mild impact of the war in Ukraine on the Caucasus and Central Asia.

In sub-Saharan Africa, the growth outlook is slightly weaker than predicted in July, with a decline from 4.7 percent in 2021 to 3.6 percent and 3.7 percent in 2022 and 2023, respectively— downward revisions of 0.2 percentage point and 0.3 percentage point, respectively.

BL: What are the risks to global economies?

Dr. Seetharaman: Risks to the outlook continue to be on the downside. Overall, risks are elevated as the world grapples with the impact of Russia’s invasion of Ukraine, a slowdown in economic activity as central banks ramp up efforts to quell inflation, and the lingering pandemic.

The risks, if realized, are likely to depress growth further and keep inflation higher for longer. Some of these risks are currently top of mind for the world’s largest firms as they navigate a highly uncertain environment.

While inflation is increasingly important, firms still see COVID-19 (especially in China, the global manufacturing hub) as the dominant risk.  

BL: What are your comments on the Fed action and the consequent / subsequent actions of global central banks in 2022?

Dr. Seetharaman: To prevent inflation from becoming entrenched, central banks have rapidly lifted nominal policy rates. The Federal Reserve has increased the federal funds target rate by 3 percentage points since early 2022 and has communicated that further rises are likely.

The Bank of England has raised its policy rate by 2 percentage points since the start of the year despite projecting weak growth. The European Central Bank has raised its policy rate by 1.25 percentage points this year. But because inflation has outstripped these increases, with a few exceptions, real policy rates remain below pre-pandemic levels. Differences in the paths of monetary policy normalization are due in part to core inflation rising rapidly in some advanced economies, most notably in the US, before it did in others. Real activity and financial markets have responded to the removal of monetary accommodation, with tentative signs of cooling housing markets, especially in the US, and of slowing momentum in labor markets. Interest rates and spreads have also risen in many countries and across the yield curve, inducing volatility in financial market

The Federal Reserve has raised interest rates more aggressively than the European Central Bank in part because of differences in underlying inflation dynamics and economic conditions to date. Core inflation rose sooner and has run higher in the US than in the euro area, with tighter labor markets and a higher estimated output gap. These differences partly reflect transatlantic differences in the level of direct fiscal stimulus earlier in the pandemic, as well as differences in the impacts of commodity price shocks and changes in private saving. The gap between real and nominal wage growth has also closed more rapidly in the US than in the euro area, which has added further to underlying US inflation momentum. But inflationary pressures are building in the euro area: the war in Ukraine continues to have a very clear impact, with energy and food prices accounting for about two-thirds of the rise in headline inflation and energy price increases passing through into broader inflation measures.

In this fight, advanced economy central banks may be able to depend on a larger credibility buffer. While central banks in emerging market economies and lower-income countries have made significant progress in policy strategy and communications in recent years, gaps between these economies and advanced economies persist.

Emerging market economies and lower-income countries may struggle more to defeat inflation. In all cases, however, durably reducing inflation will depend crucially on monetary policymakers’ resolve to stay the course and avoid repeating the stop-go cycle of the 1970s.

BL: What are the updates on global trade?

Dr. Seetharaman: Global trade growth is slowing sharply: from 10.1 percent in 2021 to a projected 4.3 percent in 2022 and 2.5 percent in 2023. This is higher growth than in 2019, when rising trade barriers constrained global trade, and during the COVID-19 crisis in 2020, but well below the historical average (4.6 percent for 2000–21 and 5.4 percent for 1970–2021). The slowdown, which is 0.7 percentage point steeper than that projected for 2023 in the July WEO Update, mainly reflects the decline in global output growth. Supply chain constraints have been a further drag: the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index has declined in recent months—largely because of a decrease in Chinese supply delivery times—but is still above its normal level, indicating continuing disruptions.

Whereas global trade growth is declining, global trade balances have widened. After shrinking during 2011–19, global current account balances—the sum of all economies’ current account surpluses and deficits in absolute terms—increased during the COVID-19 crisis and are projected to rise further in 2022.  The widening of balances has reflected the pandemic’s impact.

The 2022 decline in asset prices in the US—the economy with the world’s largest net liability position (external assets minus external liabilities)—could cause valuation losses for foreign holders of US assets. At the same time, however, US dollar appreciation could lead to valuation gains in emerging market and developing economies, which tend to have long positions in foreign currency, while increasing the burden of dollar-denominated public sector debts.

BL: What are the current trends in precious metals?

Dr. Seetharaman:

(As at 25^th Nov 2022)

Spot Gold - $ 1758.27 / Ounce

Spot Silver - $ 21.51 / Ounce

“Precious metals displayed cautious moves as investors await the non-farm payrolls data and unemployment rate from U.S. later today for clues on Fed’s monetary policy path.

While gold is considered a hedge against inflation, higher US rates reduce the non-yielding bullion's appeal and boost the dollar. Silver rates firmed 0.6% to $20.77 per ounce.

In international as well as domestic markets, gold prices have risen about 3% so far this week.

Silver is trading higher today but prices may face pressure due to limited global risk.

"A strong rebound in the U.S. dollar index from early week lows has been limiting the upside in the precious metal markets.

BL: What are current trends in oil prices?

Dr. Seetharaman:

(As at 25^th Nov 2022)

WTI – $ 78.20 / Barrel

Brent Crude – $ 85.38 / Barrel

Natural Gas – $ 7.19 / MMBtu

WTI crude futures edged above $78 per barrel, but were still set to end the week lower due largely to concerns about Chinese demand and reports of a high price cap by G7 nations on Russian oil that eased supply worries. The US oil benchmark is down more than 2% this week, on track for the third straight weekly decline. China continued to grapple with surging Covid cases, stoking fears that authorities would adopt wider movement restrictions that could hurt energy demand in the world’s top crude importer. Meanwhile, markets evaluated the impact of the G7’s proposed price cap on Russian oil in the range of $65-70 per barrel which is higher than current prices for Urals, allaying fears that Russia would retaliate by cutting supply. Still, investors remain cautious ahead of the European Union ban on Russian crude on Dec. 5, as well as an OPEC+ meeting on Dec. 4.

BL: What is your insight on industrial metals trends?

Dr. Seetharaman:

(As at 25^th Nov 2022)

Copper was at $ 8041 / Tonne, Aluminum $ 2397.50 / Tonne, Zinc $ 2918 / Tonne

Copper futures fell to $3.6 per pound from the five-month high of $4 hit on November 11th, as signs of weaker demand and a rebound for the US dollar outweighed looming concerns of supply shortages. Data from top consumer China showed that industrial production slowed more than expected in October, while house prices declined for the sixth consecutive month. Meanwhile, China reported the first Covid deaths in six months as Beijing cases rise increasing the possibility of economic restrictions. Still, copper prices remain 6% higher since the start of November on looming supply concerns.

Aluminum futures were trading around the $2,400 per tonne mark, close to levels not seen since mid-August, after top consumer China eased coronavirus-related restrictions, fuelling speculation of a broader relaxation in measures and offering a short-term upbeat outlook for demand. On the supply side, LME has decided against banning Russian metal from being traded and stored in its warehouses because a substantial share of the market is still planning to buy the country's metal in 2023. Still, the metal is down roughly 40% from a record high touched earlier this year amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks. Alcoa, the largest US aluminum producer, has warned investors that high energy and raw material costs and a fall in aluminum prices are putting pressure on margins. Aluminum hit an all-time high of around $4,100 per tonne in March in the aftermath of Russia's invasion of Ukraine.

Nickel futures eased to around $25,000 per tonne after LME stepped up market surveillance activity in response to a rally that saw the commodity surge by 40% to a six-month high of around $30,000 in just two weeks. Sharp price swings revived concerns about a liquidity crisis in one of the most crucial industrial commodities. In early March, nickel briefly topped the $100,000 mark amid a vicious short squeeze as China's Tsingshan Holding Group bought large amounts to hedge its short bets. Meanwhile, investors continued to follow developments around China's zero-Covid policy as renewed lockdowns in some cities continue to hamper industrial activity in the world's top metals consumer. On the supply side, the nickel deficit of 2021 should turn into a surplus in 2022 amid solid output from Indonesia.

BL: What is your insight on agricultural commodities trends?

Dr. Seetharaman: (As at 25^th Nov 2022)

Corn price was $ 666.25 / Bushel

Wheat - $ 813.50 / Bushel

Soyabean – $ 1436 / Bushel

Corn increased 69.90 USd/BU or 11.78% since the beginning of 2022, according to trading on a contract for difference (CFD) that tracks the benchmark market for this commodity.

Chicago wheat futures fell below $7.9 per bushel in the fourth week of November, the lowest in three months, as expectations of strong supplies continued to pressure wheat benchmarks. Following a period of supply uncertainty, Russia agreed to extend the UN-brokered deal that guarantees a trade corridor for vessels carrying Ukrainian grain in the Black Sea for another four months. According to Ukrainian authorities, the country was able to export more than 11 million tonnes of grain by ships since the start of the deal on August 1st, significantly easing shortage concerns in the next marketing year. In turn, extended supplies from the Black Sea are set to allow US players to build much-needed stocks in 2022-23. In the meantime, data from the USDA’s WASDE report increased projections for world supply and ending stocks for the upcoming marketing year, compared to expectations of a decline, as higher output in Australia and Kazakhstan offset potential declines in Argentina and the EU.

Soybeans futures edged down to $14.2 per bushel in the third week of November, tracking a retreat in soyoil futures and crude oil on concerns about demand from top consumer China. Rising Covid-19 cases in China raised concerns about the demand for commodities. Meanwhile, Russia agreed to extend a United Nations-brokered deal allowing exports of Ukrainian grain and other farm products from the Black Sea. On the other hand, traders expect the demand from China to rebound as the country needs to rebuild stocks after hog profits recovered. On the supply side, the upcoming soy season is likely to be affected by a lack of rain and farmers are unincentivized to invest in planting due to the La Nina climate pattern

BL: What is your insight on soft commodities trends?

Dr. Seetharaman: (As at 25^th Nov 2022)

Cocoa was at $ 2444 / Tonne

Coffee – $ 162.75 / Pound

Sugar - $ 19.55 / Pound

Cocoa futures on ICE fell to the $2,400 level in late November, amid concerns about a fall in demand due to China's covid spike and slowing global growth and as supply worries eased. Cocoa prices touched a 6-month high of $2558 on November 10th, after a strike by dock workers in Ivory Coast blocked cocoa bean arrivals at ports. At the same time, both Ivory Coast and Ghana which together account for 60% of the world’s cocoa, have vowed to charge a premium of US$400 per tonne on all cocoa sales. Also, fertilizers costs remain elevated and an outbreak of black pod disease in some west-African growing areas threatens production for the 2021/2022 season.

Arabica coffee futures on ICE extended losses to $1.54 per pound, touching the lowest in 16 months, as the outlook for global supply remains favorable while demand is seen weakening amid recession prospects. Rabobank said in a report that it expects the global coffee market to move from a small deficit in 2022/23 to a surplus in next year's season, helped by adequate rainfall in Brazil and increased production in response to high prices since 2020 while demand growth was expected to be weak. Also, a large inflow of arabica coffee into ICE-approved warehouses remained a bearish influence. The latest data indicated ICE-certified coffee stocks stood at 468,291 bags as of November 15th, well above a 23-year low of 382,695 bags set on November 3rd. There were 598,716 bags pending grading.

Sugar futures on ICE were at 20 cents per pound, easing slightly from the seven-month high of 20.3 cents touched on November 15th as the retreat in crude oil prices increased the opportunity cost of using cane feedstock to distill ethanol, driving producers to increase the crush of sugar. Still, prices remain over 10% higher from the start of the month as authorities in major sugar producer India reduced the export quota for the 2022/23 marketing year. The country will grant export permits for 6 million tons of sugar until May 2023, nearly half of the quota from the prior year. At the same time, investors continued to assess supply expectations for top producer Brazil amid the possibility that president-elect Lula could lift the country’s fuel price cap in January, further supporting prices

BL: What are the major trends in advanced economies currencies?

Dr. Seetharaman:

(As at 25^th Nov 2022)

Dollar index is at 105.83 level

1 US $ - 138.65 Yen

1 Euro – 1.042 $

1 Pound – 1.211 $

BL: What are the major trends in emerging economies currencies?

Dr. Seetharaman:

The Indian rupee was near 82 levels against the US dollar

The South African Rand was near 17 levels against the US dollar.

The Brazilian Real was near 5 levels against the dollar

The Chinese Yuan was near 7 levels against the dollar

The Russian Rouble was near 61 levels against the dollar

BL: What is the highlight on economic growth of Qatar?

Dr. Seetharaman: The economy of Qatar advanced by 6.3% year-on-year in the second quarter of 2022, following a 2.5% growth in the previous three-month period, preliminary estimates showed. It was the fifth consecutive quarter of expansion after a pandemic-induced recession, and the strongest pace in the GDP growth since the first quarter 2012, mainly boosted the non-mining and quarrying sector (9.7 percent). At the same time, mining and quarrying activities expanded by 1.2%. Main positive contributions came from transportation & storage (19.6%); construction (18.9%); wholesale and retail trade, repair of motor vehicles and motorcycles (20.3%), and real estate activities (10.6%). On a quarterly basis, the GDP grew by 3.6%, the first expansion in the GDP since the third quarter 2021

As Qatar has vast oil and natural gas reserves, mining is the main driver of the economy, contributing 58 percent of GDP. The second biggest sector is Services which accounts for 28 percent of total output. Within services the most important segments are: finance, insurance, real estate and business services (12 percent); government services (7 percent) and trade, restaurants and hotels (6 percent). The remaining 14 percent is contributed by manufacturing and construction.

BL: What is your insight on Qatar non hydrocarbon diversification?

Dr. Seetharaman: Qatar’s non-hydrocarbon sector offers huge opportunities for investors

Qatar’s non-hydrocarbon sector creates wealth of opportunities for foreign investors and will help the country maintain long-term sustainable growth.  The country’s economic diversification and business attraction efforts, as guided by the 2030 National Vision, have substantially strengthened the country’s economic prospects.”

“The legacy of the FIFA World Cup Qatar 2022 by raising the country’s profile and spillover effects on non-hydrocarbon industries such as real estate, hospitality, sports and healthcare will help Qatar maintain long-term sustainable growth and create a wealth of opportunities for foreign investors.

Despite geopolitical and economic challenges, Qatar’s economic confidence over the next 3 years is 80 percent, down slightly from 2021 (84 percent) As companies continue to navigate the changing landscape resulting from the COVID-19 pandemic, 92 percent of Qatar’s CEOs report positive growth expectations in 2022 (88 percent in 2021),

Source: World Economic Outlook Report – October 2022

BL: What are the reforms planned by Qatar stock exchange?

Dr. Seetharaman: The Qatar Investment Authority (QIA) launched a new market making initiative to boost liquidity at the Qatar Stock Exchange (QSE,) the bourse tweeted on Tuesday, as part of a wider raft of reforms to attract foreign investors.

The $445 billion sovereign wealth fund said that licensed market markets would be able to access some of QIA's stock inventory and incentives programmes to make the market in Qatar Stock Exchange's listed stocks.

Qatar's stock exchange, which trades about 500 million riyals ($137.36 million) a day, is working with various stakeholders to further increase the free float in the market, the QIA said in a separate statement on the bourse on Tuesday.

The bourse was also working "to attract more listings, introduce more ETFs and derivatives to help investors diversify their portfolios and better manage their investment risks", the QIA said in a statement posted on the stock exchange.

With a strong performance in the early months of 2022, Qatar’s capital markets have demonstrated their resilience in the face of global and regional uncertainties. This growth is likely to continue in the year ahead, boosted by the global economic recovery and Qatar’s key role in supplying the world with energy. At the same time, recent reforms to foreign ownership rules – including a law allowing up to 100% overseas shareholding in listed companies – demonstrate a continuing policy of economic openness, encouraging international investment.

BL: What is your insight on the latest Economic Update of GCC?

Dr. Seetharaman: This issue of the Gulf Economic Update includes a special section focused on GCC green growth opportunities for the GCC countries as the world accelerates transition to a greener future. Moving away from fossil fuels towards greener energy should not be seen as a threat but as a tremendous opportunity. This direction is entirely in line with GCC country vision documents that outline an image of the economy of the future that relies increasingly on the private sector playing a leading role in investment, job creation and value addition. The report presents the latest economic developments in the GCC focusing on the post-pandemic recovery, the vaccine roll out and the implications of a more favorable oil market. The team will highlight the medium-term prospects given continued volatility in the oil market and the need to diversify GCC economies.

GCC Countries Outlook

Bahrain: Bahrain’s economic outlook hangs on oil market prospects and the government’s commitment to the reform agenda. Growth is expected to accelerate to 3.8% in 2022; mainly driven by the non-hydrocarbon sector which is expected to exceed 4% growth, supported by the full reopening of the economy and a stronger manufacturing sector. Higher oil prices and resuming spending restraints under FBP are expected to significantly narrow the fiscal deficit to less than 4% of GDP in 2022. The current account balance, which recorded its first surplus in seven years in 2021, is forecasted to improve markedly to reach 11.3% of GDP in 2022 and remain in surplus over the medium term.

Kuwait: Economic growth is forecast to accelerate in 2022 to 8.5% before moderating to 2.5% in 2023 and 2024, respectively. The non-oil sector is anticipated to continue expanding in 2023 following a 7.7% uptick in 2022. More robust demand will be translated into additional upward inflationary pressures, though monetary tightening and decreasing global food prices will moderate inflation in the medium term. The fiscal balance is anticipated to register a surplus of 1.1% of GDP in 2022, with the possibility of a widening surplus (5.9% of GDP) if the newly elected Parliament approves government’s proposal to suspend FGF transfer during this fiscal year. Higher oil receipts are expected to more than compensate for the larger imports bill resulting in a significant external balance surplus of 28.6% of GDP in 2022.

Oman: The economy is projected to continue its recovery and strengthen over the medium-term, driven by robust energy prices, expansion of oil and gas production, and wide-ranging structural reforms. GDP growth is forecast to reach 4.5% in 2022 before moderating to an average of 3.2% in 2023-24. The overall fiscal deficit is expected to turn into a surplus of nearly 6% of GDP in 2022—the first surplus in almost a decade—reducing gross financing needs. Similarly, the external balance is swinging back into surplus (6% of GDP in 2022)—the first surplus in 7 years—on the back of higher oil receipts and recovery in non-oil exports.

Qatar: Real GDP is estimated to rise to 4% in 2022 with exports (5.4%) and government consumption (4.8%) leading on the demand side. Growth in private consumption may be slightly below 4.5%, driven by higher interest rates and prices. Consumer prices are projected to increase on average 4.6% this year and to remain a full percentage point above levels recorded last year as far out as 2024. Both the current account and fiscal balance surpluses are projected to widen significantly in 2022 given their dependence on booming hydrocarbon prices—with the former expected to reach 20% of GDP and the latter 6% of GDP during 2022.

Saudi Arabia: Growth is expected to accelerate to 8.3% in 2022 before moderating to 3.7% and 2.3% in 2023 and 2024, respectively. In spite of recent signals for a more cautious approach to OPEC+ planned production, the oil sector will remain the main driver behind this growth with output estimated to grow by 15.5% in 2022. The budget balance should register a surplus of 6.8% of GDP in 2022—the first surplus in nine years—driven by higher oil revenues. Meanwhile, higher oil receipts are expected to more than compensate for the larger imports bill resulting in a significant external balance surplus of 18.8% of GDP in 2022.

United Arab Emirates: Higher oil export volumes coupled with a revival in non-oil demand will support strong economic growth in 2022. This is further supported by a favorable business environment and world-class infrastructure. Real GDP is expected to grow by 5.9% in 2022 before moderating to 4.1% in 2023 as slower global demand dampens growth due to tightening financial conditions. Higher oil receipts supplemented with a gradual non-oil recovery will bolster fiscal revenue resulting in a fiscal surplus to hover around 4.4% of GDP in 2022. Recent bilateral free trade agreements with Asian partners supported by strong oil exports will place the current account surplus at 11.2% of GDP in 2022.

This issue of the Gulf Economic Update includes a special section focused on GCC green growth opportunities for the GCC countries as the world accelerates transition to a greener future. Moving away from fossil fuels towards greener energy should not be seen as a threat but as a tremendous opportunity. This direction is entirely in line with GCC country vision documents that outline an image of the economy of the future that relies increasingly on the private sector playing a leading role in investment, job creation and value addition. The report presents the latest economic developments in the GCC focusing on the post-pandemic recovery, the vaccine roll out and the implications of a more favorable oil market. The team will highlight the medium-term prospects given continued volatility in the oil market and the need to diversify GCC economies.

BL: What are your views on the improvement in the SDG index in GCC

Dr. Seetharaman: The six Gulf Cooperation Council (GCC) member countries, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE), face major challenges on SDG 5 (Gender Equality), SDG 6 (Clean Water and Sanitation), SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action). Major challenges also remain on indicators related to health (prevalence of obesity), water scarcity (freshwater withdrawals as a share of total renewable water resources), clean energy (renewable electricity output), and air quality (annual mean concentration of particulate matter).  The UAE is one of only three countries to achieve a green score for an SDG, namely on SDG 1 (Zero Poverty). Underpinning this is a green score on all indicators related to ending poverty. In comparison with other subregions, the GCC scores better on SDG 17 (Partnerships for the Goals).  Furthermore, none of the countries within the GCC sub-group scores red on SDGs 4 (Quality Education) and SDG 11 (Sustainable Cities and Communities).  That said, significant data gaps remain on SDGs 1 and 10 (Reduced Inequalities) for the rest of the GCC, which hinder eorts to assess these countries’ performance on these SDGs. For other SDGs, there are major data gaps on an indicator level related to marriage among girls below the age of 15, child labor, new HIV infections and battlerelated deaths.

Regarding the Trends Dashboard, all GCC countries are on track to achieving SDG 4 (Quality Education), with the exception of Kuwait, and SDG 12 (Responsible Consumption and Production), with the exception of Oman. Positive trends are also visible on SDG 3 (Good Health and Well-being), SDG 6 (Clean Water and Sanitation), SDG 7 (Aordable and Clean Energy) and SDG 9 (Industry, Innovation and Infrastructure). Additionally, indicators related to peace (political stability and absence of violence/terrorism) and partnerships (Statistical Performance Index) show positive trends in the region. Also on the positive side, prevalence of obesity shows a declining trend for all GCC countries. On the downside, indicators related to biodiversity loss (Red List Index of species survival) and public spending (government health and education spending) showed negative trends across the sub-region except for Saudi Arabia and Kuwait, respectively. 

BL: What is your insight on the latest Economic Update of India?

Dr. Seetharaman: India will likely post a 6.8%–7.1% growth during FY22–23, provided global uncertainties and inflation don’t weigh on domestic demand and investment sentiment in the near term

The seemingly unending saga of global economic uncertainties (which we discussed at length in our previous outlook) has begun to negatively impact India’s main drivers of growth. And recent events—such as the US Fed’s 75-basis-point (bp) hike with assurances of more to come, a slowdown in China with growth falling below the rest of Asia for the first time since 1990, and the United Kingdom’s steepest tax cuts since 1972 (but reversed recently)—have provided little solace either, with likely implications on INR and the country’s current account deficit. These events prompted the Reserve Bank of India (RBI) to implement another aggressive rate hike of 50 bps in September, taking the policy rate up from 4% to 5.9% in a span of six months.

So volatile is the current economic environment that if one is looking for certainties from the recent data releases, it is unlikely that a consistent outlook will emerge. In this outlook, we try to decipher the current data with a broader focus on drivers of growth, inflation, currency, and the current account. Although we remain optimistic about India’s economy in the foreseeable future, this forecast comes amid a lot of debate.

The latest GDP numbers for Q1 FY2022–23 suggest that economic growth is on a healthy track (figure 1). Consumers, after a long lull, have started to step out confidently and spend—private consumption spending went up 25.9% in Q1. Investment also kept pace with demand, although uncertainties around supply and prices are preventing firms from committing to large capex spending. Nevertheless, aided by a strong rebound in demand drivers, the Indian economy grew by 13.5% in Q1 FY2022–23.1

On the production side, the contact-intensive services sector also witnessed a strong rebound of 17.7%, thanks to improving consumer confidence. Agriculture, the only sector that consistently performed well throughout the pandemic, remained buoyant. Industrial growth boosted from accelerating growth in “construction” and “electricity, gas, water supply and other utility services” sectors.

A sector that has not yet taken off sustainably is manufacturing, which witnessed modest growth of 4.5% in Q1 (see “Are we underestimating the contributions of manufacturing?” for more on this). Higher input costs, supply disruptions, and labor shortages due to reverse migration have weighed on the sector’s growth. According to the Reserve Bank of India’s (RBI’s) data on nonfinancial firms, surging raw material costs have stressed the profitability and margins of companies.

BL: In your views, what is the biggest challenge for Indian Economy?

Dr. Seetharaman: The overall consumer price index (CPI) inflation has remained above the upper range of the RBI’s target rate for most of the year. Earlier this year, inflation was largely driven by higher commodity prices and supply disruptions. While upstream energy companies benefitted due to higher realizations, profitability in most other sectors remained stressed due to rising production and transportation costs.7 This prompted manufacturers, from consumer goods to automobiles to steel, to pass on the higher costs to consumers by calibrating price increases.

The runaway inflation prompted the government to reduce excise duty to bring down prices of petrol and diesel, as well as for essential items such as edible oil and other imported raw materials for industries. It also imposed bans on exports of certain commodities to address domestic supply issues. The RBI, meanwhile, promptly hiked its repo rates by 1.9 bps in a span of five months and introduced the standing deposit facility to absorb the excess liquidity (see sidebar, “Why RBI’s tighter monetary policy makes sense?” for more on this).

It was only in the second half of Q1 that commodity prices witnessed some corrections. Lately, inflation has been driven primarily by consumer food prices, suggesting a seasonal impact of variations in rains across the country on agricultural output. Rising food prices hurt rural demand the most, and in August, rural inflation witnessed a greater increase compared with urban inflation. This is not good news for rural demand, which has been struggling to revive.

BL: What are your views on the RBI’s tighter monetary policy

Dr. Seetharaman: It Makes Absolute Sense

A large part of the inflation is driven by supply-side factors, while demand-pull inflation drivers remain range bound. According to a study by the SBI, 65% of CPI inflation in May was due to supply-side disruptions and had marginally dropped to 58% in July.8 However, it increased again to 61% in August, suggesting supply disruptions in the food products owing to unseasonal rains causing their prices to rise. Can a tighter monetary policy help contain inflation caused due to supply-side challenges and not derail the nascent recovery instead? The reason why the RBI’s move is justified is that tighter policy helps in anchoring inflation expectations when inflation has remained persistently high for a very long time (over two years now). Prolonged inflation feeds into expectations, which means people expect the inflation trend to continue and expect prices to remain high in the future as well and change their behavior accordingly. Higher inflation expectations result in consumers postponing purchases, and therefore, delaying the demand pickup. Producers raise the prices of goods assuming that the higher production costs will persist. That results in a rise in core prices. In fact, core prices are on a steady rise, which is a cause for concern because they often tend to be sticky-down. The RBI’s move is thus prudent to contain inflation expectations and prevent adaptive expectations from impacting demand and preventing the spiraling of prices.

The other challenge is the rising current-account deficit and currency depreciation against the dollar. While a rebounding domestic economy is resulting in higher imports, moderating global demand is causing exports to slow. The US dollar’s unrelenting rise and global inflation are further causing India’s import bills to rise.

INR’s depreciation against the US dollar is more due to the appreciation of the latter owing to the flight to safety among global investors amid global uncertainties. It is appreciating against the euro, pound, and yen, suggesting that the macroeconomic fundamentals of the Indian economy remain strong.

Yet, the RBI had to intervene to contain volatility and ensure an orderly movement of the rupee. The RBI’s intervention is leading to a drawdown in foreign exchange reserves. Consequently, the import cover from reserves has reduced to nine months from a high of 19 months at the start of 2021 (although, it remains above the benchmark of three months).

Expectations: With global economic growth likely to moderate, global prices may ease. A possible moderation in crude oil and industrial raw material prices may reduce inflation by mid of 2023. The falling prices of oil and gas, copper, zinc, and other commodities are likely to help sectors such as consumers, metals, cement, and automobiles in the coming quarters. Falling cost of production will be of great help to local small-scale manufacturers that have struggled to survive during the pandemic and maintain their market share because of rising prices.

The fall in prices may be short-lived if a sustained demand improvement exceeds supply, leading to overheating of the economy. Similarly, despite easing commodity prices, the current account may remain a concern as India’s growth path will likely defy the global slowdown, resulting in higher imports than exports.

BL: What in your views are the steps that can be taken by India to revive India economic growth?

Dr. Seetharaman:

Tax Cuts and Tax Rebates

Tax cuts and tax rebates are designed to put more money back into the pockets of consumers. Ideally, these consumers spend a portion of that money at various businesses, which increases the businesses’ revenues, cash flows, and profits. Having more cash means companies have the resources to procure capital, improve technology, grow, and expand. All of these actions increase productivity, which grows the economy. Tax cuts and rebates, proponents argue, allow consumers to stimulate the economy themselves by imbuing it with more money.

For instance, the government announced a reduction in corporation tax rates in September last year. It slashed corporate tax rates for domestic manufacturers from 30% to 22%, while for new manufacturing companies; the rate was reduced from 25% to 15% provided they do not claim any exemptions, this policy is designed to increase economic growth for the next ten years.

Stimulating the Economy with Deregulation

Deregulation is the relaxing of rules and regulations imposed on an industry or business. It became a centre piece of economics in the India in 1991, when the Union government deregulated several industries, most notably financial institutions, industries and foreign investments, that promoted spurt of economic development, it must be done regularly.

For example, through disinvestments of loss-making PSUs.

Using Infrastructure to Spur Economic Growth

Infrastructure spending occurs when a local, state, or federal government spends money to build or repair the physical structures and facilities needed for commerce and society as a whole to thrive. Infrastructure includes roads, bridges, ports, and sewer systems. Economists who favor infrastructure spending as an economic catalyst argue that having top-notch infrastructure increases productivity by enabling businesses to operate as efficiently as possible. For example, when roads and bridges are abundant and in working order, trucks spend less time sitting in traffic, and they don’t have to take circuitous routes to traverse waterways.

Additionally, infrastructure spending creates jobs as workers must be hired to complete the green-lighted projects. It is also capable of spawning new economic growth. For example, the construction of a new highway might lead to other investments such as gas stations and retail stores opening to cater to motorists.

Using the above analysis of various dimensions of Indian economy, we can come to the conclusion that while India has great economic prospects there are also many challenges which need to be overcome to harness the true potential of the economy. We have already seen the steps government had taken and few micro-level solutions to address these challenges. Now, we shall look at few broader measures which can make our country a “Major Economic Powerhouse”.

Growth:

Raise investment rates to 36% of GDP

Increase tax-GDP ratio to 22% of GDP

Work with states to improve ease of business and rationalize land & labour regulations

Employment and Labour Reforms:

The necessary condition for employment generation is economic growth.

Fully codify central labour laws and enhance Female Labour Force Participation to 30%

The employability of labour needs to be enhanced by improving health, education and skilling outcomes and a massive expansion of the apprenticeship scheme.

Technology & Innovation:

Establish an empowered body to holistically steer the management of science

Create a non-lapsable District Innovation Fund

Industry:

Develop self-sufficient clusters of manufacturing competence, with plug & play parks for MSMEs

Impetus to Labour Intensive Export firms

Launch a major initiative to push industry to adopt Industry 4.0

Introduce a “single window” in states providing a single point of contact between investor & government

Doubling Farmers Income:

Modernize technology, increase productivity & agro processing and diversify crops

Abolish APMC -Adopt Model APLM Act, Model Contract Farming Act & Model Land Leasing Act

Create modern rural infrastructure & an integrated value chain system

Link production to processing, set up village-level procurement centres

Energy:

Bring oil, natural gas, electricity & coal under GST to enable input tax credit

Promote smart grid & smart meters

Ports, Shipping & Inland Waterways:

Double the share of freight transported by coastal shipping & inland waterways

Complete Sagarmala project. Open up India’s dredging market

Logistics:

Develop an IT enabled platform for integrating different modes of transport

Rationalize tariffs & determine prices in an efficient manner across different modes

Create an overarching body that maintains a repository of all transport data.

Rationalising GST :

Rationalization of GST Slabs and Rates as suggested by Kelkar Committee

Inclusion of Petroleum Products within the GST Regime

Addressing the issue of Inverted Duty Structure under the GST for few imported products

Inclusion of all the Real Estate Transactions within the GST Regime

Faster processing of GST Refunds for Exporter.

Resolving NPA Problem:

Mudra Loans: Raghuram Rajan suggests closer scrutiny of the loan applications while granting Mudra Loans.

Prompt Corrective Action (PCA) guidelines need to be reframed in a balanced manner to address the dual objectives of growth and NPA resolution.

Economic Survey 2016-2017 suggests the setting up of a centralized Public Sector Asset Rehabilitation Agency (PARA) that could take charge of the largest, most difficult cases, and make politically tough decisions to reduce NPAs

The 4th R, which is Reform (of the 4R Strategy for NPAs resolution suggested by Dr. Aravind Subramanian) must be given prime importance if we have to prevent the NPAs Ballooning in the future.

India needs to carry out the crucial internal reforms that will allow it to be a productive international player and to take on the leadership roles that so many people across the world hope that it will.

Reorganization of the health system with much greater emphasis on primary medical centres or PMCs

Any improvement in the life of the majority would require a re-alignment of the growth process so that it is less damaging.

This would very likely require that we have slower growth but the process can be configured to channel more of it towards poorer groups.

 India could and should aspire to double-digit growth. Without sustained growth at that all levels it has little hope of employing the roughly one million young people who join its workforce every month.

And unless it takes advantage of its current, favourable demographics it is never likely to emerge as an upper middle-income economy with a prosperous and thriving middle class.

BL: What is your future plan post retirement from your banking career?

Dr. Seetharaman: Post retirement, I would want to be busier than ever and keep getting better than yesterday, everyday. 

To this endeavor, I have modestly commenced two activities that are expected to expand in the days to come.  (As I said, we will consistently get better than yesterday – everyday)

1. com – Global Business Outlook - Knowledge Management Website

Information contained therein is snippets from global sources with the analysis and elucidation from subject matter experts providing authentic commentaries and reflections of Global Business Outlook.

This goes to nurture my thoughts on the need for enlightening global citizens in the area of global business outlook and global macro-economic environment.

To enable this vision the website has been developed to contain global business updates on a daily basis.

Any person that is interested in knowing the daily update in the global business environment, including aspirants to become qualified accountants, civil servants, economists, bankers, investors etc., can be benefited by its contents

I sincerely believe, the information contained in the website to contribute immensely to the knowledge enhancement of the reader in the area of Global Business and Economic environment.

Seetharaman School of Sustainable Development, a registered trust with the main objectives of

1. Propagating sustainability by sensitizing society on the ill effects of global warming
2. Propagate UN identified SDGs, Green Mission
3. To execute sustainable development projects including elimination of extreme poverty, gender inequality, universal health care, universal education, working towards green mission to protect this planet, to reduce the income inequality etc.,

1. Sustainability is the main focus. Equally would like to devote my post retirement time to contribute to
2. Research and Academics - Visiting International universities to lecture on global topics.

• Social commitments – Upliftment of economically backward section of the society.

1. Human development values – Propagate value system and contribute to Man making and character building.