New Delhi, Jan 31 (FN Bureau) India’s external sector has shown immense resilience during 2021 which augurs well for growth revival in the economy, despite the pandemic continuing to impact the global economic environment in various ways, the Economic Survey 2021-22 said on Monday. The Survey, tabled in Parliament by Finance Minister Nirmala Sitharaman, said the balance of risks for global trade is tilted to the downside. The biggest downside risk emanates from the pandemic itself, particularly with resurgence of new variants such as Omicron. The surge in global inflation, longer port delays, higher freight rates, shortage of shipping containers, shortage of inputs such as semiconductors, with supply-side disruptions being exacerbated by recovery in demand, pose significant risks for global trade, it said. The Covid-19 pandemic continued to impact the global economic environment during 2021.
The first half (H1) of 2021 witnessed an acceleration in global economic activity, that lifted the merchandise trade above its pre-pandemic peak. Reflecting this, International Monetary Fund (IMF) in its World Economic Outlook (WEO) October 2021 edition projected higher growth of global trade volume in goods and services of 9.7 percent in 2021, moderating to 6.7 percent in 2022, in line with the projected global recovery. The World Trade Organization (WTO) in its October 2021 release, also upgraded its forecast for global merchandise trade volume growth to 10.8 percent in 2021, followed by a 4.7 percent rise in 2022. Besides revival in global economic activity, the high growth rate for global merchandise trade volume in H1 of 2021 was also aided by the previous year’s slump, which bottomed out in the second quarter of 2020.
The pick-up in momentum witnessed during the first two quarters of 2021 weakened again by the third quarter (Q3) due to rapid spread of the Delta variant and the threat of new variants. It led to breakage in critical links of global supply chains resulting in longer than expected supply disruptions, taking its toll on the global recovery. The world trade in nominal value terms (US dollar) during 2021 tracked that in terms of volume: deceleration in Q3, following an acceleration in first quarter (Q1) and second quarter (Q2). The trade performance of major economies in volume and value terms during 2021 broadly reflects the generic trajectory of world trade. These major economies witnessed deceleration in Q3 on the back of a pick-up in Q1 and Q2, barring Russia in the case of exports and Indonesia for imports.
As regards global financial conditions, in 2021, inflation picked up globally as economic activity revived with opening up of economies. Inflation in US touched 6.8 per cent in November 2021, the highest since 1982, driven largely by energy and food prices. As inflation worries are mounting, a distinct shift towards the unwinding of pandemic-led stimulus is taking hold. This may result in tightening of financial conditions, adversely affecting capital flows, putting pressure on exchange rate and slowing down growth in emerging economies. The the revival in inflation across the world poses risks from both a tighter global liquidity condition and exchange rate volatility in global currency, it said.