If you’ve been following international trade news this week, you likely have a very dim view of the future of global trade. Two major organizations -- the World Bank and the Asian Development Bank (ADB) -- have come out with reports that warn that global growth is slowing down, driven by elevated trade and geopolitical tensions. Naturally, both reports paint a gloomy picture for Indian exports as well, with the ADB even forecasting that India’s GDP will probably rise only 7.2% this year, 0.4% down from the December forecast. India’s export woes are being further compounded by a resurgent rupee, with the currency’s appreciation dampening the outlook for exporters already struggling with a slower-than-expected revival. Dark clouds are definitely gathering on the horizon for Indian exports, but there is some silver lining as well. India-Mexico bilateral trade has broken records this week, rising to an all-time high of $10 billion. Total trade between the country has risen 240% in the last decade and is set to grow even further in the future. Another silver lining has come in the form of the RBI’s first bi-monthly monetary policy statement (MPS). The MPS has highlighted that India’s exports basket is shifting away from primary and traditional low value-added exports to higher value-added manufacturing and technology-driven items. This has helped stabilize India’s overall exports in the face of a hostile international trading environment, but whether it will be enough to boost India’s exports, in the long run, remains to be seen.
Trade Update
6th April, 2019
# 19
Concerns over a global economic slowdown are growing, with the world’s largest economies including the United States and China showing sluggishness. The World Bank, in its outlook in January 2019, cautioned that “the outlook for the global economy has darkened.” It cut the forecast for global growth for 2019 to 3.5% from 3.7% earlier, on account of tighter financing conditions, moderating industrial production and elevated trade tensions.
The Asian Development Bank downgraded economic growth forecasts for India and Southeast Asia for 2019 as global risks from trade tensions to Brexit mount. Gross domestic product in India will probably increase 7.2% this year, down from a December forecast of 7.6%, according to the ADB’s latest Asian Development Outlook report. Southeast Asia’s growth estimate was lowered by 0.2 percentage points to 4.9%.
The rupee on Tuesday recovered sharply to settle at 68.74 against the US dollar with gains of 40 paise amid sustained foreign fund inflows and heavy buying in domestic equities. With exporters still struggling to see a significant revival, appreciation of the rupee may add more pressure. Software, automobile and ancillaries, pharmaceutical and textiles firms could be under pressure, while aviation and select capital goods and consumer durables may benefit due to imports.
For the first time ever, India-Mexico bilateral trade has crossed $10 billion in 2018 making Mexico the most important trading partner of India in the Latin American region, surpassing Brazil. In the last decade, total trade has increased 240%, out of which 58% came in the last two years since 2016. There has been an upward swing in the relations between the two countries after Prime Minister Narendra Modi’s visit to Mexico in June 2016, when both countries decided to upgrade the bilateral relations to the level of “Strategic Partnership”.
The changing color of India’s export basket is giving a cue to the country’s new trade dynamics. One interesting observation noted in the Reserve Bank of India’s (RBI) first bi-monthly monetary policy statement (MPS) 2018-19 relates to a shift in the country’s exports basket -- a clear swing away from primary and traditional low value-added exports to higher value-added manufacturing and technology-driven items. A comparison of key items of exports between 2011-12 and 2018-19 (April-February) reveals that there has been a significant increase in the shares of chemical and related products and engineering goods, and such a shift has imparted a measure of resilience to export demand in a hostile international trading environment, says RBI’s policy statement issued on 4th April.