GLOBAL HEADWINDS

 The term headwind is used to describe conditions that inhibit or impede progress.  It impacts the economies, industries and individual companies.Those factors that lead to decrease in value or growth of the economy or the company are refered as headwinds.They may include factors such as cost of capital, increased competition, decreased money supply etc.While macroeconomic  headwinds are mainly  high interest rates, inflation, fluctuations in exchange rate,poor economic growth etc , whereas microeconomic headwinds that affect individual firm or industry are mainly - decreased revenue, increased input cost, increased competition, decreased demand and operational, legal or management issues.

As the global head winds spread across countries and continents,World Bank's latest Global Economic Prospects January 2023 report indicate a sharp long lasting slowdown with global growth declining to 1.7% in 2023 from 3% expected six months ago, virtually affecting all regions resulting in a setback to global prosperity even in 2024.By the end of 2024 GDP level in emerging market and developing economies (EMDEs) will be about 6% below the level of the pandemic year .At present countries like USA , Euro area and China are undergoing a period of pronounced weakness resulting in spillovers exacerbating other headwinds faced by EMDEs.The combination of slow growth, tightening financial conditions and heavy indebtedness is likely to weaken investment and trigger corporate defaults.Global growth  is expected to be the third weakest  in nearly three decades overshadowed by global recessions. Most country forecast have been downgraded. The recovery from pandemic recession is far from complete especially in EMDEs and percapita income growth outlook is miserably subdued for poverty stricken countries. Accordingly growth projections have been downgraded to almost all advanced economies and about two third  of EMDEs in 2023and for about hallf of all countries in 2024.Debt among EMDEs is at a 50 year high and Russia Ukraine war has further deteriorated into major costs. Restoring progress will be particularly difficult in regions like Sub-Saharan Africa where 60% of the world's poor live and percapita income growth is expected to be 1.2% over the next 2 years .EMDEs is projected to grow by just 3.5% on an average from 2022-2024.World Bank report showed that world GDP growth was estimated to be 2.9% in 2022,1.7% in 2023 and forecasted to be 2.7% in 2024.whereas corresponding figures for advanced economies were 2.5 for 2022,0.5 for 2023 and 1.6 for 2024 .USA also showed 1.9 for 2022,  0.5 for 2023 and 1.6 for 2024 as against Euro area 3.3,0.0 and 1.6  in respective years. 

Japanese performance was similar with 1.2,1.0 and only 0.7 forecasted for 2024. However EMDEs has shown some hope with estimated 3.4% growth in 2022,3.4 in 2023 and 4.1 in 2024.China is expected to grow 2.7% in 2022,4.3 in 2023 and forecasted to achieve 5.0 in 2024.Russia which face negative growth in both 2022 and 2023(-3.5 and -3.3) and forecasted 1.6 in 2024.Most significantly corresponding figures for India in  2022,2023 and 2024 are 6.9  for 2022,6.6 for 2023 and 6.1 for 2024 respectively. Interestingly Saudi Arabia's estimated  growth which indicated whopping 8.3 in 2022 declined to 3.7 and 2.3 in 2023 and 2024 respectively.By all indications India is set to become  the fastest growing economy of the world's seven largest EMDEs assuming that both both fiscal and monetary tightening continues and adequate policy buffers have provided breathing room to support the ongoing recovery and boost public investment. The Bank also indicated about extreme weather complicating implementation of macro economic policies. For instance in India more erratic monsoon rainfall translated into volatile food prices destabilising households budgets. 

Inflation continues to remain high world wide and well above central bank targets in almost all inflation targeting economies.Inflation is likely to gradually moderate over the course of time though there are isolated signs that underlying inflation pressures could become more persistent.In response central banks around the world have been tightening policy faster than previously expected. Monetary policy tightening in advanced economies, a strong US $,geographical tensions and high inflation have dampened risk appetite and led to widespread capital outflows and slowing  of bond issuance across EMDEs.It has been observed that 1% fall in GDP of USA may impact 0.4% of GDP in India.However as per latest data US consumer inflation eased to 6.5% slowest pace in more than one year. Similarly India's annual retail inflation slowed to 5.72% in December remaining below RBI's upper tolerance limit of 6% for the second consecutive month,though largely impacted by fall in vegetable prices.According to RBI Governor interest rates globally could remain elevated if the current geopolitical tensions were to continue,but sees moderating inflation and improving economic outlook in advanced economies. 

In short despite the warnings of looming recession across at least one third of the world and  persistence of external headwinds,  India's resilience in terms of domestic demand even though rural demand has to keep up with urban, increased tax buoyancy both in direct and indirect taxes, and relatively better other macro economic fundamentals including, foreign exchange reserves, agricultural growth , growth of services sector and  core industrial sectors need to be taken into account. If geo political tensions are not aggravating, even if other global headwinds are persisting still Indian economy's resilience can be sustained.