The German economy, the European Union (EU) powerhouse that produces 28% of the bloc’s gross domestic product, contracted in the last three months of 2012. With the German economy contracting, it isn’t only the EU that will feel the pinch. India too will suffer.india Updated: Jan 24, 2013 21:01 IST
Data from Europe could spell a fresh spell of declines in India’s exports. The German economy, the European Union (EU) powerhouse that produces 28% of the bloc’s gross domestic product, contracted in the last three months of 2012. The EU, overall, is in recession — defined by two consecutive quarters of shrinking output — and Germany could not have escaped the fallout considering a substantial part of its trade is within the eurozone. Despite German growth slowing from 3% in 2011 to 0.7% in 2012, its exports climbed 4.1% and signs of a further revival are being read in demand from China, which appears to be climbing out of its slowdown. Some forecasts for the eurozone likewise predict that the worst may be behind it after three quarters of contraction.
The blip in Germany is likely to show up in our trade data. The EU is our largest trading partner and India cannot reasonably expect to remain unscathed by a recession there. Of immediate worry is that India’s trade deficit has widened to 5.4% of the GDP on oil and gold imports. The decline in the rupee has, however, not made our exports unusually competitive. Exports in April-December 2012 contracted 5.5 % in dollar terms over the same period a year ago. Imports shrunk too, by a very modest 0.7 %. But take oil out of the picture and imports actually shrank 6.37%.
India’s trade with China and the Association of South East Asian Nations are the fastest growing channels, thanks to a proactive Look East policy pursued over the past two decades. Yet, the US and the EU still draw 30% of our merchandise exports. The weakness in the advanced economies — the International Monetary Fund’s latest projection is a 0.2 contraction in the EU and a 2% growth in the US provided fiscal tightening does not snuff it out — will be felt across the world. India will not escape it.