Is US Economy headed for a Recession and What will be its impact on India? – Explained

US Recession News: The US real GDP contracted by 0.9 percent in the second quarter of FY 2022-2023 (April-June). This is the second consecutive quarter when the US economy has reported degrowth. This strengthens the fears that the US is heading into a recession, despite repeated denial by President Joe Biden. 

President Biden has maintained that the US economy is on the right path despite the latest dip in the real gross domestic product. The US real GDP had decreased by 1.6 percent earlier in the January-March quarter as well, as per data from the US Bureau of Economic Analysis. 

The latest US GDP estimate released for Q2 is based on source data that is reportedly incomplete or subject to further revision by the source agency on August 25, 2022.

Is US Economy headed for a Recession?

The second consecutive decline in the real GDP of the United States qualifies for a technical recession, as per experts. A technical recession is when the real GDP shows decline in two consecutive quarters.

The US Bureau of Economic Analysis said in a statement that the decrease in real GDP reflected decrease in federal government spending, state and local government spending, private inventory investment, residential fixed investment and nonresidential fixed investment, which were partly offset by increases in exports and personal consumption.

US Economy not heading into recession: President Biden 

US President Joe Biden has maintained that the US economy is not going into a recession. 
said that in his view, the country’s economy is not heading into a recession. He said that the employment rate is still one of the lowest they have had in the history and we still find people investing.

The US Federal Reserve Board Chairman Jerome Powell also stated that the United States is not in recession and can avoid the current downturn while tackling inflation. 

Fed Reserve raises US interest rate by 75 basis points

The US federal reserve has raised the benchmark interest rate by 75 basis points, its second straight such raise and fourth rate hike in total this year in effort to curb the strongest surge in inflation in more than four decades. 

The Federal Reserve Chairman Jerome Powell indicated plans to announce another unusually large rate hike, as inflation is too high. The US Federal reserve is expected to keep raising rates till there is some indication of rollback in the inflation. He also added saying that the US spending and production data have softened. 

How does US recession affect India? 

Know impact of de-growth of US real GDP in India in 7 Points-

1. The United States is India’s biggest export destination and the growing fears of US recession has put Indian exporters on the edge.

2. US recession is likely to cause a slowdown in the demand that will affect the exports from India negatively. 

3. India exported goods worth $14.3 billion to the US in the first two months of this financial year, making up 18.2 percent of the total export.

4. India is also heavily dependent on imports for its energy requirement, as it imports more than 80 percent of its crude oil consumption.

5. The oil prices are expected to take a hit if a global slowdown happens, just like it did in 2008 when Brent crude prices dropped from USD 147 per barrel to around USD 36 per barrel. This could be a positive for India. 

6. The oil prices have already declined from this year’s record high of USD 134 per barrel to below USD 100 per barrel over fears of a recession. If the recession cascades to other economies as well in the world then consumption pattern would take a hit, leading to a crash in oil prices. 

7. This would lessen India’s import bill and strengthen India’s forex reserves and the Indian rupee. 

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