US-China relations have kept the global economy and all the economic agents on the edge of their seats. Even when COVID-19 has cast a dark spell on the globe, both sides are doing their best to entertain us. Geopolitics deaccelerated the global economy in 2019 and in the beginning of this year it took a pause. Then virus entered into scene and it became the theme of round two in this clash of titans. Both sides blamed each other for spreading the virus, private companies were being targeted and now Hong Kong has become the epicentre. After China approved a new security bill which will impact the autonomy of Hong Kong, the US took steps to revoke special trade privileges it gave to Hong Kong. Although Phase 1 trade deal is still intact for now. However, it brings the question&nbsp;why these nations are engaged in this trade conflict.&nbsp;

US story

Team US knows that free international trade is advantageous (positive-sum game) for both the parties as argued by Adam Smith and David Ricardo. However, the US argues that it only happens if both the parties abide by the rules of free trade and if that’s not the case then trade become zero-sum game (where one would gain at the cost of other). So players of team US states that even after China joined WTO they continued to engage in unfair trade practices and acted like a modern mercantilist. China gave export subsidies and manipulated its currency to get an unfair competitive advantage in the international market. So the US imposed all these trade barriers on China to create a level playing field. Beside this US feels that China has poached a lot of US companies to do business in China and that has impacted jobs of workers in the US. At the same time, China is accused of using various means to exploit MNCs in China. Such as forced technology transfer, IP thefts, biased treatment between foreign MNCs and domestic Chinese firms. China has also been accused of cyber-attacks. So all the trade and non-trade measures like attacking business eco-system of Huawei are taken as a response to China’s unfair actions. &nbsp;

China’s Story&nbsp;

China is considered the world’s factory and it seems to have acted like one big firm. In the 1970s, it realised that its labour is relatively cheap and efficient than neighbouring countries and it started taking advantage. China incentivised local officials to take advantage of this cheap labours. Generally, a politician’s objective is considered votes and bureaucrat’s objective is power and control. So they engage in rent-seeking behaviour like bribes, while local politicians engage in favours for its voters to maintain its vote bank. Now China here took advantage of its authoritarian regime and created a system where a local official would rose in rank if his/her area would develop rapidly. So these local officials started bringing in foreign companies and technologies to their cities, establish factories and develop their cities. Gradually China deregulated its economy, increased its expenditure in R&amp;D (from less than 0.6 per cent of GDP in 1996 to 2.14 per cent of GDP as per world bank) became a member of WTO, started manufacturing more high value-added products and used means like reverse engineering to catch up with latest technologies pretty quickly. &nbsp;

Now, China has caught up with most of the latest technologies in most of the sectors, so this means the skills of workers increased and that translated in high wages of labour. This rise in labour cost is reducing the attraction for MNCs to establish themselves in China. Current geopolitical environment and negative feelings against China after pandemic are actually pushing companies away from China. &nbsp;

Economic growth is important as it reduces the chances of social unrest. For this, China has to open up the economy and make it more competitive. However, that is difficult because China is a homogenous country and diversity brought in by globalisation makes it uncomfortable. At the same time, China still remembers a century of humiliation where different foreign powers conquered China again and again. So that also acts as hurdles in opening up. &nbsp;

US-China conflict

After World War II, the world was bipolar and two great powers the US and USSR existed. Then in 1990, USSR collapsed and America became global hegemon (Supreme Power). For many years China, on the other hand, remained low and continued developing itself without global ambitions. However, now China feels that it has developed enough and after 2008 crises it seems to be more convinced that it in the near future it would become a global superpower. &nbsp;

Organski has stated in his power transition theory that hegemon state would try to prevent any challenger from rising and threatening its hegemony. This explains all the actions that the US takes against China, whether it’s a weaponising economic tool or attacking image and intentions of China. America also has a big advantage of soft power (Influencing through appeal and attraction rather than force). The American ethos of liberal ideas, making big on your own and pop culture resonate so deeply with the whole world that it became a symbol of the way ahead. &nbsp;

This soft power is something that China is struggling with. Chinese actions in Hong Kong, the South China Sea, trapping countries by debts is portraying China as a bully. Currently, there is a higher mistrust against China in the world. So the US is taking various actions against China as that would not just harm the dragon but may also potentially increase the soft power of America. It’s because these actions will portray that the US punished China for its wrongdoings on behalf of the whole world. &nbsp;

So China is trying to compensate by improving its technology. As it believes that this would not just help in growing economically but also in influencing people across the world. Huawei is like one of the flag bearers for China in this regard. That’s why the US is attacking the company so as to delay the technological advancement of China.&nbsp;

China is also considered a system designer or some say a system re-designer. China feels that the current system is designed by the US to maintain its hegemony. So what’s the better time to redesign the system and stronghold its presence when the world is destabilised and in shock. That explains the aggressive actions of China recently. This shows that even Europe would become a battleground. After the world war, the US helped Europe by Marshall Plan which cemented their relations, but this time the US has in-fact imposed trade barriers on Europe and that is impacting relations negatively. Relations within Europe are also not on best terms. Brexit brought tensions between the UK and the European Union. Even members of the European Union are dealing with mistrust among them. So all this creates an opportunity for China to increase its influence in Europe at the expense of the US.&nbsp;

Now China has done a lot of catch up effect. So, to keep growing rapidly, innovations in new technologies are a must. For that China needs to incentivise and deregulate its Universities and private companies a lot more. But highly deregulated universities and private companies have huge potential to challenge the authoritarian regime in China. If it won’t do that then economic growth may stagnate and that in itself will lead to revolt. So it seems that way ahead is pretty tough for China even domestically and in that case, the US may continue to enjoy its hegemony. However, China growth story is pretty unique and we can’t write it off that simply. So fasten your seatbelt and enjoy the ride. &nbsp; &nbsp;

&nbsp;(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)&nbsp;

US-China relations have kept the global economy and all the economic agents on the edge of their seats. Even when COVID-19 has cast a dark spell on the globe, both sides are doing their best to entertain us.

US-China relations have kept the global economy and all the economic agents on the edge of their seats. Even when COVID-19 has cast a dark spell on the globe, both sides are doing their best to entertain us. Geopolitics deaccelerated the global economy in 2019 and in the beginning of this year it took a pause. Then virus entered into scene and it became the theme of round two in this clash of titans. Both sides blamed each other for spreading the virus, private companies were being targeted and now Hong Kong has become the epicentre. After China approved a new security bill which will impact the autonomy of Hong Kong, the US took steps to revoke special trade privileges it gave to Hong Kong. Although Phase 1 trade deal is still intact for now. However, it brings the question why these nations are engaged in this trade conflict. US story Team US knows that free international trade is advantageous (positive-sum game) for both the parties as argued by Adam Smith and David Ricardo. However, the US argues that it only happens if both the parties abide by the rules of free trade and if that’s not the case then trade become zero-sum game (where one would gain at the cost of other). So players of team US states that even after China joined WTO they continued to engage in unfair trade practices and acted like a modern mercantilist. China gave export subsidies and manipulated its currency to get an unfair competitive advantage in the international market. So the US imposed all these trade barriers on China to create a level playing field. Beside this US feels that China has poached a lot of US companies to do business in China and that has impacted jobs of workers in the US. At the same time, China is accused of using various means to exploit MNCs in China. Such as forced technology transfer, IP thefts, biased treatment between foreign MNCs and domestic Chinese firms. China has also been accused of cyber-attacks. So all the trade and non-trade measures like attacking business eco-system of Huawei are taken as a response to China’s unfair actions. China’s Story China is considered the world’s factory and it seems to have acted like one big firm. In the 1970s, it realised that its labour is relatively cheap and efficient than neighbouring countries and it started taking advantage. China incentivised local officials to take advantage of this cheap labours. Generally, a politician’s objective is considered votes and bureaucrat’s objective is power and control. So they engage in rent-seeking behaviour like bribes, while local politicians engage in favours for its voters to maintain its vote bank. Now China here took advantage of its authoritarian regime and created a system where a local official would rose in rank if his/her area would develop rapidly. So these local officials started bringing in foreign companies and technologies to their cities, establish factories and develop their cities. Gradually China deregulated its economy, increased its expenditure in R&D (from less than 0.6 per cent of GDP in 1996 to 2.14 per cent of GDP as per world bank) became a member of WTO, started manufacturing more high value-added products and used means like reverse engineering to catch up with latest technologies pretty quickly. Now, China has caught up with most of the latest technologies in most of the sectors, so this means the skills of workers increased and that translated in high wages of labour. This rise in labour cost is reducing the attraction for MNCs to establish themselves in China. Current geopolitical environment and negative feelings against China after pandemic are actually pushing companies away from China. Economic growth is important as it reduces the chances of social unrest. For this, China has to open up the economy and make it more competitive. However, that is difficult because China is a homogenous country and diversity brought in by globalisation makes it uncomfortable. At the same time, China still remembers a century of humiliation where different foreign powers conquered China again and again. So that also acts as hurdles in opening up. US-China conflict After World War II, the world was bipolar and two great powers the US and USSR existed. Then in 1990, USSR collapsed and America became global hegemon (Supreme Power). For many years China, on the other hand, remained low and continued developing itself without global ambitions. However, now China feels that it has developed enough and after 2008 crises it seems to be more convinced that it in the near future it would become a global superpower. Organski has stated in his power transition theory that hegemon state would try to prevent any challenger from rising and threatening its hegemony. This explains all the actions that the US takes against China, whether it’s a weaponising economic tool or attacking image and intentions of China. America also has a big advantage of soft power (Influencing through appeal and attraction rather than force). The American ethos of liberal ideas, making big on your own and pop culture resonate so deeply with the whole world that it became a symbol of the way ahead. This soft power is something that China is struggling with. Chinese actions in Hong Kong, the South China Sea, trapping countries by debts is portraying China as a bully. Currently, there is a higher mistrust against China in the world. So the US is taking various actions against China as that would not just harm the dragon but may also potentially increase the soft power of America. It’s because these actions will portray that the US punished China for its wrongdoings on behalf of the whole world. So China is trying to compensate by improving its technology. As it believes that this would not just help in growing economically but also in influencing people across the world. Huawei is like one of the flag bearers for China in this regard. That’s why the US is attacking the company so as to delay the technological advancement of China. China is also considered a system designer or some say a system re-designer. China feels that the current system is designed by the US to maintain its hegemony. So what’s the better time to redesign the system and stronghold its presence when the world is destabilised and in shock. That explains the aggressive actions of China recently. This shows that even Europe would become a battleground. After the world war, the US helped Europe by Marshall Plan which cemented their relations, but this time the US has in-fact imposed trade barriers on Europe and that is impacting relations negatively. Relations within Europe are also not on best terms. Brexit brought tensions between the UK and the European Union. Even members of the European Union are dealing with mistrust among them. So all this creates an opportunity for China to increase its influence in Europe at the expense of the US. Now China has done a lot of catch up effect. So, to keep growing rapidly, innovations in new technologies are a must. For that China needs to incentivise and deregulate its Universities and private companies a lot more. But highly deregulated universities and private companies have huge potential to challenge the authoritarian regime in China. If it won’t do that then economic growth may stagnate and that in itself will lead to revolt. So it seems that way ahead is pretty tough for China even domestically and in that case, the US may continue to enjoy its hegemony. However, China growth story is pretty unique and we can’t write it off that simply. So fasten your seatbelt and enjoy the ride. (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Here's how geopolitical developments amid coronavirus crisis impact US and China

Coronavirus is not just once in a lifetime event, it’s something that is bringing a stream of once in lifetime events. Oil prices turning negative for the first time is the latest example of it. It perfectly depicts how grave the ground reality of economic turmoil is. Since there was a lack of demand, and supply was very high the huge imbalance caused prices to go even negative for some time. Due to COVID-19 crisis, oil has shed the tears, but what’s the sentiment of global markets and economy? &nbsp;&nbsp;

World Health Organisation (WHO) expects that in the next 6 months, cases in Africa can reach up to 10 million. So it seems virus will continue to impact the global economy for quite some time directly and even for longer indirectly.&nbsp;&nbsp;

International Monetary Fund expects a developed economy to fall at a faster rate than emerging countries and global GDP is predicted to decline by 3 per cent in 2020. Developed countries are expected to decline by 6.1 per cent while emerging economies will fall by 1 per cent. IMF expects global GDP to revive next year and grown by 5.8 per cent where China and India are expected to lead the way. &nbsp;

Countries in Europe are opening up, so currently it seems that dawn is approaching.&nbsp;However, there is a risk of the second wave which experts expect to be even more dangerous. 
 
If we look at data, Chinese GDP fell by 9.8 per cent in the Jan-March quarter as compared to the previous quarter, retail sales industrial production across the globe are witnessing declines. Inflation is subdued, job losses are ramping up. So yes we know things are currently very bleak, but how would they emerge in future? Well, that all depends on sentiment. The sentiment of consumers, businesses, CEOs and also politicians. &nbsp;&nbsp;

As per the poll by Young Presidents' Organisation (YPO), 60 per cent of CEOs across the globe expect U-shape recovery. CEOs feel the rapid change has created a lot of uncertainty and some of them are fearful about the survival of their businesses. In Germany, the businesses are opening up but consumers are not coming in large numbers. In the UK, it's reported that footfall in shops started dropping even before lockdown by the government. So that means even after lockdown opens people will refrain from coming out in large numbers. IHS Markit’s Household finance index (It measure how households view their financial condition) fell sharply in April as compared to March. 
 
In Japan business confidence is reported to plunge at decade low and for the next few months, it may fall even further. While in Australia, the central bank (Reserve Bank of Australia) expects economic activity in the country can remain subdued till September. In India, lockdown is going on but the financial condition of small and medium business has taken a serious hit, Since a large amount of Indian workforce belongs to the unorganised sector, so fall in business and consumer sentiment can be expected. In the US, Michigan consumer sentiment index (Survey about consumer sentiment by the University of Michigan) declined sharply and the same trend is forecasted for conference board’s consumer confidence index. So all this shows that even sentiment of business and consumer suggest tough road ahead. &nbsp;

Even geopolitical tensions are persistent. Brexit negotiations involve a lot&nbsp;of stress. In the European Commission, member states are not agreeing on issuing corona bonds as there are underlying tensions between countries like Germany, Netherland on one side, and southern countries like Italy, France and Spain on the other. In Middle-East, the US and Iranian ships came quite close to each other recently and now US President Donald Trump has instructed the United States Navy to shoot down Iranian gunboats if they harass US ships. Even in North China sea, the US sent its warships as it believes that China is bullying in disputed waters. Recently China also arrested various prominent activists in Hong Kong which again irked the US. Not to forget political backlash against China in the whole world regarding coronavirus.&nbsp;

In fact, countries across Asia and Europe are tightening their FDI rules to prevent a hostile takeover of their domestic companies by foreign firms. The feeling of protectionist has increased. Although all this won’t lead to deglobalisation all these geopolitical tensions will pose an additional hurdle to economic recovery. &nbsp;

For financial markets, Oil gave a reality check to the broader market as investors realised that economic damage is quite&nbsp;deep. Still, equity markets seemed to be higher as compared to economic reality. Why? &nbsp;

Well, the market is so broad that there is always some segment where the money is flowing. Investors may feel refrain for some time due to uncertainty but then their investing brain (also impulse) starts churning up and they look for new attractive pursuits. Currently pharma and tech stocks like Netflix, Snapchat are enjoying the attraction. Given the interconnected system, other companies that are part of their ecosystem also enjoy some benefit&nbsp;

Since there is always some sector or company that gains due to a&nbsp;particular situation, the money keeps flowing there and that even drives the whole market up. &nbsp;

Now, there is massive liquidity and lack of attraction broad range of asset class like real estate, physical investment by consumers (Propensity to save during tough times increased) and businesses (No positive future expectations), commodities (Low or no demand) and even bonds (very low or negative yields). So due to lack of attraction in other asset class, the money is flowing in the equity market. This may be why the market has rebounded to some extent.&nbsp;

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL) 
&nbsp;

Coronavirus is not just once in a lifetime event, it’s something that is bringing a stream of once in lifetime events. Oil prices turning negative for the first time is the latest example of it.

Coronavirus is not just once in a lifetime event, it’s something that is bringing a stream of once in lifetime events. Oil prices turning negative for the first time is the latest example of it. It perfectly depicts how grave the ground reality of economic turmoil is. Since there was a lack of demand, and supply was very high the huge imbalance caused prices to go even negative for some time. Due to COVID-19 crisis, oil has shed the tears, but what’s the sentiment of global markets and economy? World Health Organisation (WHO) expects that in the next 6 months, cases in Africa can reach up to 10 million. So it seems virus will continue to impact the global economy for quite some time directly and even for longer indirectly. International Monetary Fund expects a developed economy to fall at a faster rate than emerging countries and global GDP is predicted to decline by 3 per cent in 2020. Developed countries are expected to decline by 6.1 per cent while emerging economies will fall by 1 per cent. IMF expects global GDP to revive next year and grown by 5.8 per cent where China and India are expected to lead the way. Countries in Europe are opening up, so currently it seems that dawn is approaching. However, there is a risk of the second wave which experts expect to be even more dangerous. If we look at data, Chinese GDP fell by 9.8 per cent in the Jan-March quarter as compared to the previous quarter, retail sales industrial production across the globe are witnessing declines. Inflation is subdued, job losses are ramping up. So yes we know things are currently very bleak, but how would they emerge in future? Well, that all depends on sentiment. The sentiment of consumers, businesses, CEOs and also politicians. As per the poll by Young Presidents' Organisation (YPO), 60 per cent of CEOs across the globe expect U-shape recovery. CEOs feel the rapid change has created a lot of uncertainty and some of them are fearful about the survival of their businesses. In Germany, the businesses are opening up but consumers are not coming in large numbers. In the UK, it's reported that footfall in shops started dropping even before lockdown by the government. So that means even after lockdown opens people will refrain from coming out in large numbers. IHS Markit’s Household finance index (It measure how households view their financial condition) fell sharply in April as compared to March. In Japan business confidence is reported to plunge at decade low and for the next few months, it may fall even further. While in Australia, the central bank (Reserve Bank of Australia) expects economic activity in the country can remain subdued till September. In India, lockdown is going on but the financial condition of small and medium business has taken a serious hit, Since a large amount of Indian workforce belongs to the unorganised sector, so fall in business and consumer sentiment can be expected. In the US, Michigan consumer sentiment index (Survey about consumer sentiment by the University of Michigan) declined sharply and the same trend is forecasted for conference board’s consumer confidence index. So all this shows that even sentiment of business and consumer suggest tough road ahead. Even geopolitical tensions are persistent. Brexit negotiations involve a lot of stress. In the European Commission, member states are not agreeing on issuing corona bonds as there are underlying tensions between countries like Germany, Netherland on one side, and southern countries like Italy, France and Spain on the other. In Middle-East, the US and Iranian ships came quite close to each other recently and now US President Donald Trump has instructed the United States Navy to shoot down Iranian gunboats if they harass US ships. Even in North China sea, the US sent its warships as it believes that China is bullying in disputed waters. Recently China also arrested various prominent activists in Hong Kong which again irked the US. Not to forget political backlash against China in the whole world regarding coronavirus. In fact, countries across Asia and Europe are tightening their FDI rules to prevent a hostile takeover of their domestic companies by foreign firms. The feeling of protectionist has increased. Although all this won’t lead to deglobalisation all these geopolitical tensions will pose an additional hurdle to economic recovery. For financial markets, Oil gave a reality check to the broader market as investors realised that economic damage is quite deep. Still, equity markets seemed to be higher as compared to economic reality. Why? Well, the market is so broad that there is always some segment where the money is flowing. Investors may feel refrain for some time due to uncertainty but then their investing brain (also impulse) starts churning up and they look for new attractive pursuits. Currently pharma and tech stocks like Netflix, Snapchat are enjoying the attraction. Given the interconnected system, other companies that are part of their ecosystem also enjoy some benefit Since there is always some sector or company that gains due to a particular situation, the money keeps flowing there and that even drives the whole market up. Now, there is massive liquidity and lack of attraction broad range of asset class like real estate, physical investment by consumers (Propensity to save during tough times increased) and businesses (No positive future expectations), commodities (Low or no demand) and even bonds (very low or negative yields). So due to lack of attraction in other asset class, the money is flowing in the equity market. This may be why the market has rebounded to some extent. (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Historic fall in oil prices exposes the deep economic damage caused by coronavirus pandemic

The world has come to a standstill while the global economy and markets are in a tailspin. While the global economy is possibly heading into a recession, there is still hope of quick recovery&nbsp;if the virus starts subsiding in a month or two.

Central banks and governments are going all out to contain economic collapse. Still enough damage is caused and the economy can be as bad as the 2008 crisis or even worse. Although if we look across the globe different areas are painted with a different brush. So, let’s try to find out what’s in store for the world in an era after the Coronavirus crisis is over.

The US damaged severely but its growth magnets still intact: An optimist of all times, US President Donald Trump has also declared this is bad and more than 100,000 people can die in the US. Various estimates suggest that the US economy is slipping into recession while unemployment is shooting up.&nbsp;

Its condition will be critical but will recover strongly because before Coronavirus crisis struck, the world's largest economy&nbsp;was on a strong footing. Its GDP grew at a moderate pace, unemployment was at a 50-year low and its global banks were strong. So, a strong foundation gives hope of a revival. Besides this, its three growth magnets would continue to attract the best talent. The top layer of finance, tech and show business would love to work in Wall Street, Silicon Valley and Hollywood now, even at faster rates because the rest of the world is relatively more damaged. Therefore, it is likely to emerge out of ashes like a phoenix.

China: 
 
Even before Coronavirus pandemic struck, the Chinese GDP growth rate was at 30 years low, its economy was showing cracks and trade war was damaging the Chinese economy. When the virus entered in this mix it slowed Chinese economy even further. During January-February, its industrial production figures and its retail sales data were very gloomy. It became clear that there will be a contraction in the Chinese economy during the January-March quarter. However, China was able to contain it just in Wuhan so the situation in the country is getting better. Economic indicators like PMI, shipping data, road congestion is reported to be improving. This implies that economic revival has begun. In fact, various reports predict that China will be the fastest-growing economy this year. Although risks associated with China are global and there could be a political backlash due to lack of transparency and fall in export demand (which contributes to 20 per cent of its GDP). So the Chinese economy showed signs of crack before virus but it was able to contain virus quickly. Therefore cracks did not break open and the economy could very well soon be back on track. Also with Coronavirus, the attention of the US has temporarily shifted away from the trade war and its high trade deficit with China. This will reduce China's risk for some more time.

India may recover quickly if the virus is contained in stage 2: In India, things were bleak even before Coronavirus knocked at its doors. GDP growth fell from 8 per cent to around 5 per cent, credit crunch, poor business sentiment, fiscal deficit breaching target, uneven monsoon and most importantly a fall in consumption were the risks already present. Even if the pandemic becomes worse, there is a possibility of economy quickly coming back on track and there would be lower damage due to coronavirus as compared to many other global nations. So, the increase in unemployment and bankruptcies would be relatively less than the rest of the world. The situation of NPAs was resolved to a large extent even before virus so that provided some cushion. Fall in oil price would also provide some relief. All that will ensure quick recovery and inflow of foreign money. Moreover, various estimations indicate that besides China, India can be the only major country to have positive growth.&nbsp;

So, the April-June quarter will be problematic but after that things will start improving and in October quarter we may see growth speeding up. &nbsp;

Europe: 
 
The European economy was already weak due to double whammy of a trade war and Brexit. Germany, UK even went in contraction for a quarter last year, even for October-December quarter UK GDP stagnated. Due to the ageing population coronavirus shook the continent and can cause long-lasting impact. Brexit negotiations are not on the best footing also. European Union is unable to come up with joint action which indicates the underlying tension between the member states. So all of this poses a serious question about its recovery for a very long time.

Gulf: 
 
Gulf countries are facing a tough time as a fall in oil price will put huge pressure on income. Pilgrimage tourism, holiday tourism and expo events in UAE, Saudi and Iran will take a hit due to Corona pandemic. Since they need to give relief packages, there will be a strain on fiscal deficits. Postponement of Dubai 2020 Expo can impact UAE's plan to diversify the economy away from oil and tensions in OPEC+, with Saudi Arabia and Russia also pose concerns.&nbsp;

Stock Markets: 
 
Go for major indices of the US, China and India, while Europe and Gulf countries can be avoided for the time being. Once virus peaks and markets hit bottom, you can also start dipping in mid-caps.

Sectoral Situation: 
 
As people will be more concerned about health, there would be a large increase in health insurance and hence insurance and healthcare sector would gain. Some banks are quite stable so they would survive but weaker ones will struggle so the wave of mergers and acquisitions in the financial sector can be in offing. IT companies, providing specific services like video streaming, e-commerce, video and teleconferencing stand to emerge victorious as well. For internet giants, advertising revenue can take a hit. But they stand to gain sensational insight in the human mind as to how it reacted during different phases of virus and lockdown. This would help them significantly in attracting user on their sites, retaining them and even influencing them. Cargo and Shipping Industry will recover quickly as people may hesitate to go out,&nbsp;but would continue ordering online. New players like automakers are entering in biotech and new innovations can revolutionise the biotech industry.&nbsp;

Oil Industry: 
 
A fall in oil prices would also reduce the demand for its substitute goods like alternative sources of energy which would impact their development. Since lockdown shows the viability of working from home, commercial real estate can suffer. Due to the rise in unemployment, there isn't any likely rapid recovery in FMCG sector but high ticket items like real estate, passenger vehicles and luxury goods will take even longer to recover. Recovery in Aviation and Tourism will be slow due to the double whammy of rising unemployment and fear of the pandemic. 
For individual stocks company’s management can be the best gauge. As in such time, past data may not be able to indicate future development but efficient, creative management can give assurance that will come up with a way to navigate this tide.

The current situation is like shock therapy and in the post-Coronavirus era, there will be a tectonic shift in the world economic order. 
 
(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

The world has come to a standstill while the global economy and markets are in a tailspin. While the global economy is possibly heading into a recession, there is still hope of quick recovery if the virus starts subsiding in a month or two.

The world has come to a standstill while the global economy and markets are in a tailspin. While the global economy is possibly heading into a recession, there is still hope of quick recovery if the virus starts subsiding in a month or two. Central banks and governments are going all out to contain economic collapse. Still enough damage is caused and the economy can be as bad as the 2008 crisis or even worse. Although if we look across the globe different areas are painted with a different brush. So, let’s try to find out what’s in store for the world in an era after the Coronavirus crisis is over. The US damaged severely but its growth magnets still intact: An optimist of all times, US President Donald Trump has also declared this is bad and more than 100,000 people can die in the US. Various estimates suggest that the US economy is slipping into recession while unemployment is shooting up. Its condition will be critical but will recover strongly because before Coronavirus crisis struck, the world's largest economy was on a strong footing. Its GDP grew at a moderate pace, unemployment was at a 50-year low and its global banks were strong. So, a strong foundation gives hope of a revival. Besides this, its three growth magnets would continue to attract the best talent. The top layer of finance, tech and show business would love to work in Wall Street, Silicon Valley and Hollywood now, even at faster rates because the rest of the world is relatively more damaged. Therefore, it is likely to emerge out of ashes like a phoenix. China: Even before Coronavirus pandemic struck, the Chinese GDP growth rate was at 30 years low, its economy was showing cracks and trade war was damaging the Chinese economy. When the virus entered in this mix it slowed Chinese economy even further. During January-February, its industrial production figures and its retail sales data were very gloomy. It became clear that there will be a contraction in the Chinese economy during the January-March quarter. However, China was able to contain it just in Wuhan so the situation in the country is getting better. Economic indicators like PMI, shipping data, road congestion is reported to be improving. This implies that economic revival has begun. In fact, various reports predict that China will be the fastest-growing economy this year. Although risks associated with China are global and there could be a political backlash due to lack of transparency and fall in export demand (which contributes to 20 per cent of its GDP). So the Chinese economy showed signs of crack before virus but it was able to contain virus quickly. Therefore cracks did not break open and the economy could very well soon be back on track. Also with Coronavirus, the attention of the US has temporarily shifted away from the trade war and its high trade deficit with China. This will reduce China's risk for some more time. India may recover quickly if the virus is contained in stage 2: In India, things were bleak even before Coronavirus knocked at its doors. GDP growth fell from 8 per cent to around 5 per cent, credit crunch, poor business sentiment, fiscal deficit breaching target, uneven monsoon and most importantly a fall in consumption were the risks already present. Even if the pandemic becomes worse, there is a possibility of economy quickly coming back on track and there would be lower damage due to coronavirus as compared to many other global nations. So, the increase in unemployment and bankruptcies would be relatively less than the rest of the world. The situation of NPAs was resolved to a large extent even before virus so that provided some cushion. Fall in oil price would also provide some relief. All that will ensure quick recovery and inflow of foreign money. Moreover, various estimations indicate that besides China, India can be the only major country to have positive growth. So, the April-June quarter will be problematic but after that things will start improving and in October quarter we may see growth speeding up. Europe: The European economy was already weak due to double whammy of a trade war and Brexit. Germany, UK even went in contraction for a quarter last year, even for October-December quarter UK GDP stagnated. Due to the ageing population coronavirus shook the continent and can cause long-lasting impact. Brexit negotiations are not on the best footing also. European Union is unable to come up with joint action which indicates the underlying tension between the member states. So all of this poses a serious question about its recovery for a very long time. Gulf: Gulf countries are facing a tough time as a fall in oil price will put huge pressure on income. Pilgrimage tourism, holiday tourism and expo events in UAE, Saudi and Iran will take a hit due to Corona pandemic. Since they need to give relief packages, there will be a strain on fiscal deficits. Postponement of Dubai 2020 Expo can impact UAE's plan to diversify the economy away from oil and tensions in OPEC+, with Saudi Arabia and Russia also pose concerns. Stock Markets: Go for major indices of the US, China and India, while Europe and Gulf countries can be avoided for the time being. Once virus peaks and markets hit bottom, you can also start dipping in mid-caps. Sectoral Situation: As people will be more concerned about health, there would be a large increase in health insurance and hence insurance and healthcare sector would gain. Some banks are quite stable so they would survive but weaker ones will struggle so the wave of mergers and acquisitions in the financial sector can be in offing. IT companies, providing specific services like video streaming, e-commerce, video and teleconferencing stand to emerge victorious as well. For internet giants, advertising revenue can take a hit. But they stand to gain sensational insight in the human mind as to how it reacted during different phases of virus and lockdown. This would help them significantly in attracting user on their sites, retaining them and even influencing them. Cargo and Shipping Industry will recover quickly as people may hesitate to go out, but would continue ordering online. New players like automakers are entering in biotech and new innovations can revolutionise the biotech industry. Oil Industry: A fall in oil prices would also reduce the demand for its substitute goods like alternative sources of energy which would impact their development. Since lockdown shows the viability of working from home, commercial real estate can suffer. Due to the rise in unemployment, there isn't any likely rapid recovery in FMCG sector but high ticket items like real estate, passenger vehicles and luxury goods will take even longer to recover. Recovery in Aviation and Tourism will be slow due to the double whammy of rising unemployment and fear of the pandemic. For individual stocks company’s management can be the best gauge. As in such time, past data may not be able to indicate future development but efficient, creative management can give assurance that will come up with a way to navigate this tide. The current situation is like shock therapy and in the post-Coronavirus era, there will be a tectonic shift in the world economic order. (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

What's in store for the global economy after coronavirus is over?

Coronavirus has taken global markets, economies and the world by storm. Global financial markets are witnessing catastrophic bloodbath. Wall Street recorded two of its worst days since Black Monday in quick succession to trade close to 2018 December levels.&nbsp;

European stocks kissed 2012 levels and Indian markets are already trading near three-year lows. There is a huge fear in the market.&nbsp;

Dalal Street’s alchemist Shankar Sharma of First Global feels “Fear is fully justified. All economies are crumbling.&nbsp;

This is a level of distress hasn't been seen before”. &nbsp;We are having economic shutdown in shops, pubs, malls, travel, sporting events, movie shootings, factories you name it. In fact, all countries are shutting borders. The US has banned travel from Europe and the EU has also closed its borders. India has also followed the suit and entry from many countries has either been barred or restricted. All this is a precautionary measure to prevent the spread of the virus as much as possible. The situation in China has improved but now Europe has become the epicentre unexpectedly.&nbsp;

It is clear that Coronavirus is the reason behind fall in markets but let’s take a closer look at it.

Stock Markets are Forward Looking: Stock markets are considered forward-looking and they look at how things will unfold in future. Last year even when economic conditions were not great markets were trading up because they felt that things would improve in 2020 as geopolitical tensions like US-China trade war and Brexit would subside. At the onset of this year, those beliefs manifested when the US and China signed partial trade deal and UK officially left Europe. Even economic indicators had a tone of revival embedded in them. Investors felt that the economy has bottomed out and from here things will improve. At the same time central banks also provided massive liquidity and markets continued to hit a record high.

Just then, in this fragile global economic environment, which was just starting to improve, Coronavirus entered into environment. Initially, when it was in China it was expected that Beijing would be affected but not the whole world and at the max economic recovery would be delayed some time. Still, recovery was expected. However, as virus started spreading across the globe all hopes of recovery were dashed and fragile global economy which was just hoping to recover start falling even further to such an extent that various institutions have already now predicted a global recession.

Shaun Roache, Chief Asia Pacific Economist at S&amp;P Global says, “A recession across Asia-Pacific is now guaranteed due to a deep first-quarter shock in China and the shutdown of activities across G7 economies. Together with a loss of household and business confidence in these economies, will translate into severe and more persistent supply and demand shocks across the region. Unemployment rates will rise.” He also added that response by central banks may help but their effect will wane the longer the crisis lasts.

So forward-looking markets first corrected their hopes that economy will revive and then they reacted to new dynamic of global recession. Hence, the fall is so quick and sharp. At the same time, markets don’t like any kind of uncertainty and it is unclear how long Coronavirus will last. Investors are so uncertain about its total impact that they are even unable to model the markets properly (answer of this lies in the medical field and not economics). Therefore, they are taking their cash out by selling stocks and waiting for storm to settle before they invest again. Attraction for cash also explains sharp fall in gold, which is considered as safe heaven.

Geopolitical Tensions: Such situations can also bring out geopolitical tensions. As countries are closing their borders, restricting visas, containing exports of medical equipment so all this has the potential to further strain the relations between the countries. US and China are already engaged in war of words pertaining to virus outbreak. This is coming when protectionist feeling is already high. US-China only signed partial deal in January and EU-UK are still struggling over post Brexit negotiations. Not to forget that oil price war between Russia and Saudi will hamper their relations. At the same time this move will affect US Shale Gas industry so the US can also retaliate against it in number of ways. All this is adding another layer of uncertainty in the market.

Specific Industries Bearing Additional Hit: This is an economic situation where both demand and supply is getting affected. As various factories are being shut down due to preventive measures so there is massive disruption in supply chain. Operations of all the companies that are part of supply chain will take a hit hence their prices are taking a hit.

While it is also impacting the demand because the consumer has stopped spending on travelling, entertainment activities, eating out. This is impacting the business of airlines, automobiles, resorts, shipping industry to such an extent that there can be lot of bankruptcies in these industries. Therefore,&nbsp;individual stock of companies in these industries are also falling.

Since travel is severely affected so oil demand will take a hit and price war means markets will be flooded with oil supply due to which oil prices crashed. Various oil and gas companies in the US, as well as, other parts of the world can file for bankruptcies. So their share prices are also crashing.

So, broader market sell-off and industry-specific reasons are adding a further strain of stock prices of these industries.

While global banks are in a much better position than 2008 but if various companies will file for bankruptcies then bad debts will pile up and their position will weaken.

What's Next: Even though fear is currently high after a time markets will revive. So some experts feel it can be time to buy quality stock that will stand strong after dust will settle.

John Rutledge Chief Investment Officer at Safanad (Billion Dollar Asset Management Fund) says, “I expect the rest of 2020 to be very difficult but that we will see a strong rebound in 2021. For investors with cash, this is a tremendous opportunity to buy the best companies in the world at extreme discounts”

Central banks and governments are trying their best to cushion the impact. Fed reduced interest rates to zero, and the Bank of Japan is buying equities to control the blood. Governments are coming up with massive packages. Markets, however, are feeling that unless the virus is in complete control, economic activity will be disrupted and all these stimulus won’t be able to stimulate the economy effectively. Although, if governments can reassure that they will prevent bankruptcies by coming up with special schemes then markets can take a breath. While strong collaborated action by G7 or more countries can remove the veil of uncertainty and geopolitical tensions. If that happens that will also be a huge relief for the market.

Recession is here. But if things in other parts of the world progressed as they did in China then recession can be short-lived and there can be V-shaped recovery possibly by the end of the year. However, if the virus outbreak took different trajectory than in China then all bets are off. 
 
(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL) 
&nbsp;

Coronavirus has taken global markets, economies and the world by storm. Global financial markets are witnessing catastrophic bloodbath. Wall Street recorded two of its worst days since Black Monday in quick succession to trade close to 2018 December levels.

Coronavirus has taken global markets, economies and the world by storm. Global financial markets are witnessing catastrophic bloodbath. Wall Street recorded two of its worst days since Black Monday in quick succession to trade close to 2018 December levels. European stocks kissed 2012 levels and Indian markets are already trading near three-year lows. There is a huge fear in the market. Dalal Street’s alchemist Shankar Sharma of First Global feels “Fear is fully justified. All economies are crumbling. This is a level of distress hasn't been seen before”. We are having economic shutdown in shops, pubs, malls, travel, sporting events, movie shootings, factories you name it. In fact, all countries are shutting borders. The US has banned travel from Europe and the EU has also closed its borders. India has also followed the suit and entry from many countries has either been barred or restricted. All this is a precautionary measure to prevent the spread of the virus as much as possible. The situation in China has improved but now Europe has become the epicentre unexpectedly. It is clear that Coronavirus is the reason behind fall in markets but let’s take a closer look at it. Stock Markets are Forward Looking: Stock markets are considered forward-looking and they look at how things will unfold in future. Last year even when economic conditions were not great markets were trading up because they felt that things would improve in 2020 as geopolitical tensions like US-China trade war and Brexit would subside. At the onset of this year, those beliefs manifested when the US and China signed partial trade deal and UK officially left Europe. Even economic indicators had a tone of revival embedded in them. Investors felt that the economy has bottomed out and from here things will improve. At the same time central banks also provided massive liquidity and markets continued to hit a record high. Just then, in this fragile global economic environment, which was just starting to improve, Coronavirus entered into environment. Initially, when it was in China it was expected that Beijing would be affected but not the whole world and at the max economic recovery would be delayed some time. Still, recovery was expected. However, as virus started spreading across the globe all hopes of recovery were dashed and fragile global economy which was just hoping to recover start falling even further to such an extent that various institutions have already now predicted a global recession. Shaun Roache, Chief Asia Pacific Economist at S&P Global says, “A recession across Asia-Pacific is now guaranteed due to a deep first-quarter shock in China and the shutdown of activities across G7 economies. Together with a loss of household and business confidence in these economies, will translate into severe and more persistent supply and demand shocks across the region. Unemployment rates will rise.” He also added that response by central banks may help but their effect will wane the longer the crisis lasts. So forward-looking markets first corrected their hopes that economy will revive and then they reacted to new dynamic of global recession. Hence, the fall is so quick and sharp. At the same time, markets don’t like any kind of uncertainty and it is unclear how long Coronavirus will last. Investors are so uncertain about its total impact that they are even unable to model the markets properly (answer of this lies in the medical field and not economics). Therefore, they are taking their cash out by selling stocks and waiting for storm to settle before they invest again. Attraction for cash also explains sharp fall in gold, which is considered as safe heaven. Geopolitical Tensions: Such situations can also bring out geopolitical tensions. As countries are closing their borders, restricting visas, containing exports of medical equipment so all this has the potential to further strain the relations between the countries. US and China are already engaged in war of words pertaining to virus outbreak. This is coming when protectionist feeling is already high. US-China only signed partial deal in January and EU-UK are still struggling over post Brexit negotiations. Not to forget that oil price war between Russia and Saudi will hamper their relations. At the same time this move will affect US Shale Gas industry so the US can also retaliate against it in number of ways. All this is adding another layer of uncertainty in the market. Specific Industries Bearing Additional Hit: This is an economic situation where both demand and supply is getting affected. As various factories are being shut down due to preventive measures so there is massive disruption in supply chain. Operations of all the companies that are part of supply chain will take a hit hence their prices are taking a hit. While it is also impacting the demand because the consumer has stopped spending on travelling, entertainment activities, eating out. This is impacting the business of airlines, automobiles, resorts, shipping industry to such an extent that there can be lot of bankruptcies in these industries. Therefore, individual stock of companies in these industries are also falling. Since travel is severely affected so oil demand will take a hit and price war means markets will be flooded with oil supply due to which oil prices crashed. Various oil and gas companies in the US, as well as, other parts of the world can file for bankruptcies. So their share prices are also crashing. So, broader market sell-off and industry-specific reasons are adding a further strain of stock prices of these industries. While global banks are in a much better position than 2008 but if various companies will file for bankruptcies then bad debts will pile up and their position will weaken. What's Next: Even though fear is currently high after a time markets will revive. So some experts feel it can be time to buy quality stock that will stand strong after dust will settle. John Rutledge Chief Investment Officer at Safanad (Billion Dollar Asset Management Fund) says, “I expect the rest of 2020 to be very difficult but that we will see a strong rebound in 2021. For investors with cash, this is a tremendous opportunity to buy the best companies in the world at extreme discounts” Central banks and governments are trying their best to cushion the impact. Fed reduced interest rates to zero, and the Bank of Japan is buying equities to control the blood. Governments are coming up with massive packages. Markets, however, are feeling that unless the virus is in complete control, economic activity will be disrupted and all these stimulus won’t be able to stimulate the economy effectively. Although, if governments can reassure that they will prevent bankruptcies by coming up with special schemes then markets can take a breath. While strong collaborated action by G7 or more countries can remove the veil of uncertainty and geopolitical tensions. If that happens that will also be a huge relief for the market. Recession is here. But if things in other parts of the world progressed as they did in China then recession can be short-lived and there can be V-shaped recovery possibly by the end of the year. However, if the virus outbreak took different trajectory than in China then all bets are off. (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

How coronavirus made markets sea of red

Indian economy is facing a tough time but it seems we are at the end of it and dawn is approaching.&nbsp;

For the October-December quarter, GDP grew at 4.7 per cent in line with expectations of various estimates while the growth rate for the September quarter was revised up to 5.1 per cent.&nbsp;

At the same time, industrial production of 8 core sectors grew for the second month in January while growth in the core sectors for the month of December was also revised up from 1.3 to 2.1 per cent. Before that, it showed that there was a contraction for 4 months. Manufacturing PMI for the month of January also showed sharp uptick when it grew from 52.7 to 55.3. While other high-frequency indicators like passenger vehicle sales, rail freight traffic are giving mixed signals. Inflation has reached 7.59 per cent but that seemed to be due to perishable goods and is expected to come down.&nbsp;

The government has breached its fiscal deficit target, but looking at improvement in the core sector, it seems to be paying off.&nbsp;

Although a few green shoots are emerging which are trying hard to sustain, but before we dive into that, let’s take a look at what led to the slowdown.&nbsp;

Story of a current slowdown began with the delayed recognition of the twin balance sheet. It basically meant that companies were not profitable so they were unable to pay back their loans and since banks did not receive the previous loans they were unable to lend more money.

Due to this investment started deaccelerating at a time when the Indian economy was growing rapidly and a high rate of investment was required to maintain it. At the same time, the central bank increased the interest rates, following which inflation fell quite quickly.

Now high-interest rates, coupled with low inflation, led to the high real rate of interest which further dented the investments. This, in turn, impacted the job and wage growth rate.&nbsp;

All this happened in the labour-intensive sector, so a large number of people were affected which translated into a lower level of consumption, while rural consumption also fell due to the problem of uneven monsoon.&nbsp;

Since businesses were already under pressure, this fall in consumption had a multiplier effect which led to a bigger fall in investments and more downsizing by firms. For example, in the FMCG sector - the sales growth in rural areas is generally more than urban counterpart but last year it fell to almost half.&nbsp;

Due to a tight balance sheet of banks, NBFC sector (Non-Banking Finance Company) emerged into prominence and its lending increased, specifically for high ticket items like cars and homes. Also, NBFCs give a huge amount of loan to the unorganised sector. But shadow banks also took a hit after ILFS fiasco as lenders’ trust on NBFCs dented.&nbsp;

Now the global economy was also facing headwinds due to geopolitical tensions in the form of a trade war and Brexit but in most of the developed countries, the labour market was quite strong and that supported consumption. Since India's consumption also took a hit, we saw a sharp fall in the Indian growth rate as compared to the rest of the world.&nbsp;

Not to forget, the fall in investments affected the competitiveness and productivity of Indian firms at a global level (potentially), and this along with global slowdown dented the exports.&nbsp;

Government is in full fledge mode to revive growth, it has reduced corporate tax, changed personal income tax structure, set up infrastructure fund of Rs 105 lakh crore, while also coming up with various sector-specific measures. Although the government's earnings are facing stress due to low tax collection and delay in the divestment process, but right now it is more concerned about growth.

So if the economy is revived, even though the fiscal deficit target is breached, the long term fiscal consolidation target will also be achieved.

Reserve Bank of India (RBI) is also showing up its ammunition in the fight against slowdown, as it reduced the repo rate by 135 basis point.&nbsp;

And when inflation constrained it from reducing the rate further, the RBI came up with other measures like operation twist (buying long term bonds and selling short term bonds to reduce long term interest rates), easing CRR norms on incremental loans to boost lending for MSME, automobile and residential sector.&nbsp;

Furthermore, the central bank conducted long term repo operation, so banks can get money at cheaper rates and also linked more loans to external benchmarks like repo rates.&nbsp;

Although RBI reduced rates by 135 basis points, banks have not completely transmitted them because of which their profitability has improved, also the previous NPAs are being resolved.

And quality shadow banks (High-grade NBFCs) are also emerging stronger as their borrowing cost has reduced.&nbsp;

Still, there are few headwinds like telecom sector and now the coronavirus is a googly which took everyone by surprise.&nbsp;

Coronavirus has disrupted the supply chain and has impacted both the manufacturing and the service sector. The virus is spreading across the world and it can become a pandemic, which can cause a global recession. On the global front, fear of recession is quite high as indicated by a sharp fall in financial markets.&nbsp;

The current slowdown is basically a result of the policy - prevention is better than cure as business activities are being shut off to contain virus outbreak while previously it was more like a cure after the damage.

Economic fundamentals, like job market and consumption, are still strong so if the virus is contained soon, then sharp recovery can be expected in sentiment.&nbsp;

In the current scenario, the high-frequency indicator will have a favourable base effect which might give a further boost to the sentiment.&nbsp;

Also, an incident like this brings countries closer and to revive the global economy from something like this, a collaborated action can be required which would lead to countries shifting from protectionism to a more open economy.&nbsp;

This would boost exports growth in India while attracting foreign money in the form of both FPI and FDI.&nbsp; 
 
(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)&nbsp;

Indian economy is facing a tough time but it seems we are at the end of it and dawn is approaching. For the October-December quarter, GDP grew at 4.7 per cent in line with expectations of various estimates while the growth rate for the September quarter was revised up to 5.

Indian economy is facing a tough time but it seems we are at the end of it and dawn is approaching. For the October-December quarter, GDP grew at 4.7 per cent in line with expectations of various estimates while the growth rate for the September quarter was revised up to 5.1 per cent. At the same time, industrial production of 8 core sectors grew for the second month in January while growth in the core sectors for the month of December was also revised up from 1.3 to 2.1 per cent. Before that, it showed that there was a contraction for 4 months. Manufacturing PMI for the month of January also showed sharp uptick when it grew from 52.7 to 55.3. While other high-frequency indicators like passenger vehicle sales, rail freight traffic are giving mixed signals. Inflation has reached 7.59 per cent but that seemed to be due to perishable goods and is expected to come down. The government has breached its fiscal deficit target, but looking at improvement in the core sector, it seems to be paying off. Although a few green shoots are emerging which are trying hard to sustain, but before we dive into that, let’s take a look at what led to the slowdown. Story of a current slowdown began with the delayed recognition of the twin balance sheet. It basically meant that companies were not profitable so they were unable to pay back their loans and since banks did not receive the previous loans they were unable to lend more money. Due to this investment started deaccelerating at a time when the Indian economy was growing rapidly and a high rate of investment was required to maintain it. At the same time, the central bank increased the interest rates, following which inflation fell quite quickly. Now high-interest rates, coupled with low inflation, led to the high real rate of interest which further dented the investments. This, in turn, impacted the job and wage growth rate. All this happened in the labour-intensive sector, so a large number of people were affected which translated into a lower level of consumption, while rural consumption also fell due to the problem of uneven monsoon. Since businesses were already under pressure, this fall in consumption had a multiplier effect which led to a bigger fall in investments and more downsizing by firms. For example, in the FMCG sector - the sales growth in rural areas is generally more than urban counterpart but last year it fell to almost half. Due to a tight balance sheet of banks, NBFC sector (Non-Banking Finance Company) emerged into prominence and its lending increased, specifically for high ticket items like cars and homes. Also, NBFCs give a huge amount of loan to the unorganised sector. But shadow banks also took a hit after ILFS fiasco as lenders’ trust on NBFCs dented. Now the global economy was also facing headwinds due to geopolitical tensions in the form of a trade war and Brexit but in most of the developed countries, the labour market was quite strong and that supported consumption. Since India's consumption also took a hit, we saw a sharp fall in the Indian growth rate as compared to the rest of the world. Not to forget, the fall in investments affected the competitiveness and productivity of Indian firms at a global level (potentially), and this along with global slowdown dented the exports. Government is in full fledge mode to revive growth, it has reduced corporate tax, changed personal income tax structure, set up infrastructure fund of Rs 105 lakh crore, while also coming up with various sector-specific measures. Although the government's earnings are facing stress due to low tax collection and delay in the divestment process, but right now it is more concerned about growth. So if the economy is revived, even though the fiscal deficit target is breached, the long term fiscal consolidation target will also be achieved. Reserve Bank of India (RBI) is also showing up its ammunition in the fight against slowdown, as it reduced the repo rate by 135 basis point. And when inflation constrained it from reducing the rate further, the RBI came up with other measures like operation twist (buying long term bonds and selling short term bonds to reduce long term interest rates), easing CRR norms on incremental loans to boost lending for MSME, automobile and residential sector. Furthermore, the central bank conducted long term repo operation, so banks can get money at cheaper rates and also linked more loans to external benchmarks like repo rates. Although RBI reduced rates by 135 basis points, banks have not completely transmitted them because of which their profitability has improved, also the previous NPAs are being resolved. And quality shadow banks (High-grade NBFCs) are also emerging stronger as their borrowing cost has reduced. Still, there are few headwinds like telecom sector and now the coronavirus is a googly which took everyone by surprise. Coronavirus has disrupted the supply chain and has impacted both the manufacturing and the service sector. The virus is spreading across the world and it can become a pandemic, which can cause a global recession. On the global front, fear of recession is quite high as indicated by a sharp fall in financial markets. The current slowdown is basically a result of the policy - prevention is better than cure as business activities are being shut off to contain virus outbreak while previously it was more like a cure after the damage. Economic fundamentals, like job market and consumption, are still strong so if the virus is contained soon, then sharp recovery can be expected in sentiment. In the current scenario, the high-frequency indicator will have a favourable base effect which might give a further boost to the sentiment. Also, an incident like this brings countries closer and to revive the global economy from something like this, a collaborated action can be required which would lead to countries shifting from protectionism to a more open economy. This would boost exports growth in India while attracting foreign money in the form of both FPI and FDI. (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

How this economic slowdown is different from the previous ones

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Zee News Rajasthan

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Shaurya Bishnoi

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