Bloomberg Supply Lines

Bloomberg Supply Lines

Staring at its first recession in four decades, India faces a long hard slog to regain its former glory days of 8%-plus growth.

As it emerges from the world’s strictest stay-at-home rules, Asia’s third-largest economy finds local supply chains are broken, little demand for its goods in overseas markets and an escalation of a border dispute with its giant neighbor — China, which also happens to be the country’s second-largest trading partner.

All these bode ill for Prime Minister Narendra Modi’s vision to transform India into a $5 trillion economy over the next five years from $2.7 trillion currently and make it more attractive to foreign investors. Millions of Indians have lost their jobs since the lockdown was imposed in late March. Many migrants, who make up nearly a fifth of the workforce and are key to building its cities and running factories, fled to their villages.

They’re unlikely to return in a hurry, and that means output at India’s production lines won’t be restored before September. For a country whose financial year runs from April to March, that means half the year is written off. Bloomberg Economics sharply cut its growth forecasts recently and now expects gross domestic product to contract by 10.6% in the fiscal year, compared with a 4.5% drop forecast in April.

The slowdown will dim India’s allure at a time when its trying hard to win over U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China. Modi’s government has reached out more than 1,000 companies in the U.S. and through overseas missions with incentives for manufacturers, including medical equipment producers and food processors, along with apparel, leather and auto-part makers.

But the plans to brighten India’s investment allure have run into more headwinds, especially as a seven-week military standoff between the two nuclear-armed powers of China and India flared up and stoked geopolitical tensions.

While India said it remains committed to peace, an escalation risks even more bumps for firms from Alibaba and Xiaomi to Tata Motors and probably will spur companies to rewrite supply pacts. Swathes of Indian businesses also rely on raw materials from China and another bout of disruption can only prolong India’s recovery.

 Anirban Nag in Mumbai

Charted Territory

Early South Korea export figures show shipment declines easing in June amid resilient semiconductor demand and more purchases from China that raise some hope the global trade slump may be bottoming. Average daily shipments fell 16% in the first 20 days of the month compared with the prior year, improving from a decline that exceeded 20% in May. Total semiconductor shipments, the country’s biggest source of trade income, rose 2.6%, while those of ships increased 36%. 

Today’s Must Reads

  • Clipped wings | China suspended poultry imports from a Tyson Foods plant where hundreds of employees caught Covid-19, stoking concerns over U.S. and global meat exports.
  • Hop off the bus | Airbus plans to pursue voluntary job cuts before seeking forced reductions, as it aims to bring down costs without inciting a political uproar in France and Germany.
  • American made | As the OPEC+ alliance sticks to its guns in trying to curb oil output to shore up prices, Asian buyers are increasingly looking to the U.S. for a cheaper source of supply.
  • Super-charged | Singapore is positioning itself for a post-Covid world with massive investment in innovation, on top of the immediate support it’s giving to help the economy rebound from possibly its worst downturn on record.
  • Still the king | The U.K. remains the most attractive place for foreign investment in financial services in Europe, despite the ongoing pressures of Brexit and the economic fallout from the coronavirus pandemic.
  • Signs of the times | “Novel farming,” which turns out lucrative lettuces and herbs in indoor farms, is seeing a massive jump in demand. In these days of lockdowns and food insecurity, canned meat is also enjoying a moment.

On the Bloomberg Terminal

  • Brexit effect | The U.K. construction sector’s supply patterns could be at least partially readjusted away from the EU in favor of China and other non-EU countries after Jan. 1, Bloomberg Intelligence says.
  • Choppy waters | Bonds in Maersk, the No. 1 container-shipping player with a market share of about 17%, may not fully reflect the risks ahead, according to Bloomberg Intelligence.
  • Use the AHOY function to track global commodities trade flows.
  • Click HERE for automated stories about supply chains.
  • See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
  • Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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