US RECESSION FEARS HYPED?

But any slowdown may have dampening effect on India, while bringing a silver lining for import bill and FPI inflows

- INDIVJAL DHASMANA

The jobs data has triggered fears of a recession in the United States but many feel that these apprehensions are exaggerated. Instead, the US economy may slow down or have a shallow recession later in the current year, they believe.

The US Federal Reserve, the central bank, on Monday dispelled the speculation that the economy was in a recessionary freefall. It said rate cuts could be on cards to avoid such a situation.

A recession occurs when there are two straight quarters of decline in gross domestic product (GDP). However, in a broader sense, a recession happens when there is a widespread and prolonged downturn over a few months.

The unemployment rate rose in July for a fourth straight month to 4.3 per cent in the US, nearly a full percentage-point above its January 2023 low and the highest since October 2021. However, many believe that unlike past recessions, the rate rose due to immigration of labour and slow response of the economy to such demand.

In April, the IMF had forecast the US economy to grow 2.7 per cent in 2024 against 2.5 per cent in the previous year. The US economy had contracted 2.2 per cent in 2020 as activities slowed down due to Covid-19-induced lockdowns, not only in that country but the world at large. The economy rose 5.8 per cent next year on the low base, but the growth slowed down to 1.9 per cent in 2022.

The US economy expanded 2.8 per cent in the second quarter and 1.4 per cent in the first quarter of 2024.

Whatever may be the end result, if the US economy indeed slows down, India cannot escape the dampening effects. However, there may be some positive impact, including on the import bill and the rupee value against the dollar.