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The US may witness a mild recession this year; Can affect India’s growth in medium term: Nomura MPNRC

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A report by Nomura Holdings said the US economy is likely to see a mild slowdown by the end of this calendar year as the US Federal Reserve raised rates to spur prices, which it said is the world’s largest economy. Any possible contraction in India could affect India’s growth. middle term.

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Nomura economists Aichi Amemiya and Robert Dent wrote in a note, “With the increasingly slowing growth trajectory and the Fed committed to restoring price stability, we believe that starting in the fourth quarter of 2022, the Fed will continue to grow.” A mild downturn is no longer likely to occur.”

It said that when consumption growth combined with high levels of inflation and the growth sacrifice from tight financial conditions are combined, it suggests a broader growth slowdown for India in the medium term.

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Nomura said, “Our US economics team recently downgraded our base case for the US economy to a mild recession beginning in the fourth quarter of 2022, due to dire financial conditions, a negative sentiment blow for consumers.” , reflecting poor energy and food supply disruptions and weak global growth prospects.” Told.

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It also said that the Indian economy is rushing towards pre-Covid normalcy due to rising levels of consumption and investment. India’s services sector, which was 4 per cent below pre-Covid levels in March 2022, has now risen to 40 per cent above those levels.

It expects India’s GDP to grow at a slower clip of 7.2 per cent annually in 2022 and 5.4 per cent in 2023 with downside risks.

Meanwhile, economists at Goldman Sachs have now revised their chances of entering a recession over the next one year. They now see a 30 percent chance of entering a recession in the next year, up from 15 percent in the first, and a 25 percent conditional probability of entering a recession in the second year, if one is avoided in the first, according to Goldman. Latest note by Sachs.

“We now view recession risk as higher and more front-loaded. The main reason is that our baseline growth trajectory is now lower and we are increasingly concerned that the Fed will remain firmly on high headline inflation and consumer inflation expectations. would feel compelled to react if energy prices rise further, even if activity slows sharply,” according to a Bloomberg report citing a note written by economists led by Jan Hetzius.

Economists at BofA Securities also see a nearly 40 percent chance of a US recession next year, with inflation remaining consistently high. They expect US GDP growth to hit nearly zero by the second half of next year “as the sluggish effects of tighter fiscal conditions cool the economy,” while they see a “moderate” rebound in growth in 2024. They now expect a global economic growth rate of 3.2 percent. He said that he has projected the global growth rate to be 4.3 percent by 2022.

The US central bank recently raised 75 basis points (bps) to contain high inflation. This is the biggest increase in interest rates since 1994. It had earlier planned a 50-bps hike for the June meeting, but US consumer inflation eased to a four-decade high of 8.6 per cent in May, higher than expected.

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