The old adage goes that when the US sneezes, the world catches a cold. And this time the country caught Covid-19. Despite repeated attempts by the central bank, the likelihood of the world’s largest economy slipping into recession within the next 12 months has risen to nearly 50% from 30% in June, economists predicted in a Bloomberg poll earlier this month.
The US is India’s largest export destination. And growing fears of a US recession are keeping Indian exporters on edge as a slowdown in demand here weighs on export growth.
In the first two months of this fiscal year, India exported $14.3 billion worth of goods to the US, accounting for 18.2% of total exports.
Farida Group, one of the largest exporters of leather and leather shoes in India, says it is seeing a drop in the volume of new export orders from its American customers for the 2023 summer and winter seasons, with winter orders showing a much sharper drop. The group sources 45-50% of its business from the US. No slowdown is expected in the near term, although the group has seen few order cancellations.
However, the situation is worse for ready-made clothing exporters, who are already noticing a drop in orders.
Rafeeque Ahmed, chairman of Farida Group, says new orders for summer 2023 show a 15% drop in volume. Customers cut orders by 20-25% for winter 2023. The clothing industry is also facing a similar situation, he says.
But on the IT services side, things aren’t looking so bleak, although the top four exporters missed their first-quarter earnings estimates. TCS, HCL, Wipro and Infosys also reported falling margins amid increases in staff costs to handle high turnover. But they do see a strong deal pipeline.
Citing a strong demand outlook, Infosys raised its full-year revenue growth forecast to 14-16% on Sunday. CEO Salil Parekh acknowledged that there have been talks of a recession and rising interest rates and that he sees pressure on some segments like mortgage companies in the financial services sector.
Wipro CEO Thierry Delaporte recently said there has been no slowdown or decrease in IT spending by the company’s customers. TCS CEO Rajesh Gopinath also expects the demand environment to remain very robust.
According to DD Mishra, senior director analyst at Gartner, the recession will not affect IT in the short or medium term, but the IT spending landscape can change at any time. The recession is not a big problem for IT companies and customers, he says.
With their customers’ IT spending plans intact, the management of Indian IT majors have commented positively on the short-term demand scenario. Nevertheless, they remain cautiously optimistic. On the other hand, Indian exporters of consumer goods will be hit hard as US households cut spending. There may still be a silver lining. Even if the US does go into recession, it is likely to be mild.