Economy
After a long exports downturn, what lies next?
Summary
Unlike many others, India’s GDP withstood the impact of its exports slowdown last year. How well it continues to do so will depend on how its key exports markets recover hereon.The year 2023 ended with several major countries either facing recessions or narrowly escaping them. The impact was immediately visible on the exports of various markets, jeopardizing their own growth in return.
India was among the laggards in exports, but it managed to maintain high growth prospects. Can it continue to do so if trade remains under stress?
First, the context. Among the 10 biggest economies, four saw a year-on-year decline in exports in 2023: Canada, China, India, and Japan. The other six recorded much weaker growth compared to 2022, with at least four months of contraction.
This decline affected the GDP of several countries, leading Germany and the UK into recession and sparking fears of a vicious cycle of both trade and GDP slowing down as a result of each other. (The UK has since exited the recession.)
While global economic growth remained positive, international goods trade did not, shrinking by 1.2%, the World Trade Organization (WTO) said last month.
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The WTO predicts trade to rise by 2.6% in 2024 and 3.3% in 2025, but this growth is expected to be uneven, with major Western markets remaining distressed.
Despite retaining the status of the world's fastest-growing major economy, India may not be completely insulated from the spillover effects, as it is now more integrated into the global economy than during the 2007-08 financial crisis, experts said.
As of 2022, India held a 2.5% share in global exports, up from a 1.45% share back then, according to World Bank data.
The services crutch
The global trade contraction in 2023 was the first one outside of a recession in the past 20 years, according to the World Bank. It came on top of several blows trade has already taken in recent years—starting from the pandemic, to two major wars and slacking agricultural output.
“Nowadays, global trade essentially works through production networks, which implies that whenever trade flows are adversely affected, there is also a significant impact on the countries which are part of the production networks and hence on the global economy," said Biswajit Dhar, distinguished professor, Council for Social Development.
For India, 2023 was not as bad for services as it was for goods trade, but that sector relies heavily on the West.
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In January 2023, services exports grew by nearly 30%, but shrank 2.7% in September, owing to the external challenges. "Our services sector exports are largely directed at advanced economies, the US being the most important among them. If these economies slow down, services exports will also take a hit," Dhar added.
Chinese influence
Apart from a plethora of problems staring at the global economy, the growth slowdown in China is one of the most significant ones. Over the years, the world’s second-largest economy has established its influence as a key trade player, offering cheaper manufacturing and exports to the world.
China is the biggest exporter, with 11.9% share in global exports in 2022.
However, China’s adverse economic outlook as a result of economic slowdown, the property market crisis and waning consumer confidence has worried the world, especially in terms of its impact on trade, which has grown significantly.
“The main problem is that China has become the supplier of manufactured goods to the entire world, which means it's possible that if its slowdown continues and if other countries are not able to step up, then India might face a few shortages in the future unless India develops its capability in those goods," said Saon Ray, visiting professor at the Indian Council for Research on International Economic Relations.
What’s next?
Global economic growth slowed from 3.1% in 2022 to 2.7% in 2023. But it's expected to stay pretty much the same over the next two years, at 2.6% in 2024 and 2.7% in 2025.
By the end of 2023, the volume of goods traded was 6.3% higher than in 2019, and the WTO has forecast a gradual improvement in global goods trade this year. With the global economy staying afloat and inflation decreasing, advanced economies could start purchasing more manufactured goods again.
If the WTO's predictions come true, Africa’s exports will grow faster than those of any other region in 2024, increasing by 5.3% from a low starting point. North America, the Middle East, and Asia are expected to see some growth in exports too, but Europe might not grow as much as the other regions.
Meanwhile, India, with its robust investments, improved consumer confidence and a strong services sector performance, is expected to grow much faster than the advanced economies.
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However, in a recent report, the Asian Development Bank (ADB) has warned that unanticipated global shocks such as supply line disruptions to crude oil markets and weather shocks impacting agricultural output are key risks to this. It expects goods exports to be affected by the lower growth in advanced economies but pick up in FY26 as global growth improves.
"India, with the fastest growth in the world, would contribute to the global demand, and if certain measures are taken, could also ramp up its goods exports," Ray said.
