Economic Roundup, May 10, 2019

Economic Environment

  • Manufacturing
  • US-China Trade War
  • Iran and Oil Price

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

As an indication that the Indian economy is slowing, India’s industrial production contracted by 0.1 per cent in March, the lowest in 21 months due to a slowdown in manufacturing.

As a knock-on effect of the US-China trade war, India may be expecting some parts of the global US supply chain to move to the country but that may not be so. India will have to rely on the domestic market because of changes in the structure of the world economy to increasingly locate the supply chain on home territory by the substitution of labor with automation. On-shoring by automation is reversing off-shoring because production costs due to technology substituting for labor are at least the same or lower. Increased automation will be a trend in India also, putting pressure on the domestic labor market whether the products or services produced are for domestic or foreign markets. The current times, politically and economically, are not the same for India as when China had become the manufacturing hub of the world. On the bright side, India should require foreign multinationals to establish manufacturing centers in the country, closer to the Indian market if they wish to access it, and reduce India’s imports.

The prospect of broader geopolitical tensions in the Middle East because of rising US-Iran tensions could push the oil price slightly higher. India along with Europe and other Asian countries where demand for oil is rising due to growing economies should work toward bypassing US sanctions on Iran and work geopolitically to ease the US-Iran situation.

Financial markets are stable and range-bound though they are sensitive to international developments on the front of US-China trade war and US-Iran tensions.

What to expect from the markets next week?

The financial markets will closely follow the US-China and US-Iran situations. Should oil price rise, it would put pressure on the rupee.

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