The slowdown in Germany is likely to have a marginal impact on India’s merchandise exports. However, overall merchandise exports are expected to slow down in 2023-24.
If the recession in Germany had had an impact on other countries in the euro area as well, it would have had a wider impact. However, experts say that the recession is unlikely to spread at this stage, causing a significant decline in EU GDP.
Germany, Europe’s largest and the world’s fourth largest economy, is in recession, with a decline in the first quarter of 2023. Germany’s gross domestic product (GDP) declined by 0.3 percent in the January-March quarter, according to data released by Germany’s Federal Statistics Office on Thursday. Even in the last quarter of 2022, Germany’s GDP had declined by 0.5 percent. A decline in GDP for two consecutive quarters is technically considered a recession.
The International Monetary Fund (IMF) has forecast that Germany’s economy will contract by 0.1 percent in 2023, having registered 1.8 percent growth in 2022.
Madan Sabnavis, chief economist at Bank of Baroda, said, “It (slowdown in Germany) is not surprising. I do not think that it will spread to other countries of the euro area to the extent that there will be a significant decline in the economic growth of this area.
According to the IMF’s global economic outlook, the euro area’s economic growth is projected to slow to 0.8 percent in 2023 from 3.5 percent last year.
Goods exports from India to Germany have been 2.2 to 2.8 per cent of the total goods sent abroad by India. Exports to Germany have been $ 10.1 billion, which is 2.2 percent of the total $ 450.9 billion in 2022-23.
Boilers, machinery and mechanical equipment, electrical machinery and equipment, nuclear reactors, sound recorders and organic chemicals are sent to Germany from India.
In such a situation, only the slowdown in Germany will not affect the growth of India’s merchandise exports much. “The impact will be marginal,” Sabnavis said.
However, exports to the Euro area have been 14 to 17 per cent of India’s total exports in recent years. The euro zone accounted for 16.6 per cent of India’s total merchandise exports in 2022-23, amounting to $74.8 billion.
These figures may show a bearish effect as overall euro area growth is likely to be affected. In the euro zone, Finland entered recession only in the last quarter of fiscal year 2022, recovering from recession in the first quarter of 2023.
Sweden’s economy is set to rebound in the first quarter of 2023 after contracting at the end of 2022. But economists still believe that there will be a slight recession this year as inflation and higher rates will reduce spending and investment.
France’s economy grew the most in the first quarter of 2023 among Europe’s largest economies, even as the government’s pension reform bill caused several strikes. The French economy grew by 0.2 per cent in the first quarter of 2023 after slowing in the last quarter of 2022.
Aditi Nayar, chief economist at ICRA, said economic growth in the euro area could remain uneven, slowing down for two years. “This will lead to contraction in India’s exports, especially of high value-added goods,” he said.
In Europe, the UK economy recovered by a modest margin when growth rose by 0.1 per cent in the fourth quarter of 2022, after contracting by 0.1 per cent in the third quarter. After that, there has been an expansion of 0.1 percent in the first quarter of 2023 as well.
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The IMF recently revised up its growth forecast for Britain and now says it will not be in recession this year. Exports to the UK in 2022-23 were $11.4 billion, which is 2.5 per cent of India’s total exports.
The World Trade Organization (WTO) has projected that the growth rate in global commercial trade will decline to 1.7 percent in 2023 from 2.7 percent in 2022. Goods exports from India are expected to remain sluggish in 2023-24 amid a fall in commodity prices.
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The US is India’s biggest export destination, with its economy expected to grow by 1.3 per cent in the first quarter of 2023, compared to 2.6 per cent in the fourth quarter of 2022. The IMF has projected a 1.6 percent growth in the US economy in 2023, while the IMF had projected 2.1 percent growth earlier.
India’s merchandise exports were to increase by 6 percent in 2022-23. However, there has been a decline in exports in the last two months, February and March. Even in the month of April of 2023-24, it fell by 12.7 percent to $34.66 billion.