scorecardresearchInflation will cool down slowly; world may see a synchronised slowdown, says Aurodeep Nandi of Nomura

Inflation will cool down slowly; world may see a synchronised slowdown, says Aurodeep Nandi of Nomura

Updated: 08 Jul 2022, 09:47 AM IST
TL;DR.
  • Growth is a bigger risk than inflation because this inflation is led by supply chain disruption and geopolitical tensions, says Aurodeep Nandi.
Rate hikes do not cool off inflation quickly and in due course rate hikes may slow down the economic recovery. Photo: Unsplash

Rate hikes do not cool off inflation quickly and in due course rate hikes may slow down the economic recovery. Photo: Unsplash

There is a risk of synchronised global slowdown over the next 12 months if the US slips into a recession, said Aurodeep Nandi, India Economist, Vice President, Nomura, in an interview with ET Now.

"Once there is a recession trigger in the US, a recession in several economies like the EU, the UK, Japan, South Korea, Australia, and Canada are also being projected. We are looking at a scenario of synchronised global slowdown over the course of the next 12 months," Nandi told ET Now.

Nandi is of the view that faltering growth is a bigger risk than inflation because this inflation is led by supply chain disruption and geopolitical tensions.

Nandi also highlighted that the rate hikes do not cool off the inflation quickly and in due course rate hikes may slow down the economic recovery. He said that inflation may moderate in the US probably towards the end of 2023 and at present, growth will be significantly impacted.

"Inflation is not something that is going to quickly turn around. It will eventually turnaround of course for hawkish central bank action with the global slowdown., but it will be a much slower turn because that is just the kind of animal inflation is," said Nandi.

"I think more than inflation slowing down, the bigger short-term risk is growth slowing down because typically, whenever central banks hike rates, it takes some lag for it to impact inflation. Also, it is a very sticky environment for inflation; supply chains are affected and geopolitical risks are involved," he told ET Now.

"There is an element of stickiness in this inflation and a lot of these high commodity prices are getting spread across various other subcomponents. So, the reaction of inflation to these hikes is not going to be immediate but what is going to be more likely is a recession," Nandi added.

Nandi believes the US will start facing a recession in the fourth quarter of 2022. While the recession may be mild, it will be a long one since the US Fed cannot come to rescue the economy because it is hiking rates to cool down inflation.

For India, Nandi expects the current account deficit (CAD) to remain elevated and expects the rupee to hit the 82 per dollar mark by the third quarter of the current calendar year.

"We are looking at around 3.2 percent of GDP in FY23 and that is a big number. We are expecting the USD INR to be 82 by Q3 of CY2022 and 81 by Q4 of 2022," he said.

Disclaimer: This article is based on an ET Now interview. The views and recommendations made above are those of the analyst and not of MintGenie.

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First Published: 08 Jul 2022, 09:47 AM IST