Economic Roundup, December 28, 2018

Economic Environment

  • India’s fiscal deficit

  • US economy

How are the Indian and global economic environments affecting the financial markets?

  • India’s fiscal deficit in the time period of April-November 2018 is already 115% of target. Subdued tax receipts lagely contributed to bloating the fiscal deficit. This is a macroeconomic drag on the Indian economy and, though there is little to be concerned at the moment, it could lead to higher interest rates and further depreciation of the rupee in the long run depending on how much the cumulative government debt is because ideally the total cumulative government debt should be around 60% of the country’s gross domestic product (GDP). The country has done a good job bringing down this number to manageable levels in the past 10 years as can be seen from the chart below.

    • The ongoing government shutdown in the US, the uncertainty resulting from president Trump’s comments about the Fed and its chairman, and the reaction of the US financial markets to Treasury Secretary Steven Mnuchin reaching out to major bank CEOs about their liquidity situation and ability to provide credit to the economy has led to considerable volatility on Wall Street. This could lead to volatility in the major advanced and emerging financial markets around the world given the uncertainty about the global economy in 2019.

      What to expect from the markets next week?

    Indian financial markets will continue to takes cues from global markets on global growth though they may not be as volatile as the US and other major global financial markets. There is continuing pressure on the oil price because of oversupply concerns due to expectation of global economic downturn despite agreement to cut output by 1.2 million barrels per day between the Organization of the Petroluem Exporting Countries (OPEC) and Russia. For India, the falling oil price balances any downward pressure on the economy and rupee from expectations of slowing global growth.

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