Explained: How Germany's Fall Into Recession Can Impact The Indian Economy

Last week it was confirmed that the world's fourth-largest economy Germany, which is also Europe's largest economy, has fallen into recession. This gave birth to a lot of questions surrounding its impact on the Indian economy, and if and how it would impact India.

How Germany's Recession Can Impact The Indian Economy

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An expert has answered that recently. "Economic recession in Germany is likely to impact India's exports from various sectors like chemicals, machinery, apparel and electronics to the European nation," Chairman of the CII Committee on EXIM Sanjay Budhia has said. He, however, said that it is too early to see the impact of the economic recession in Germany on India's exports.

Germany, the world's fourth-largest economy, is facing recession as its GDP fell 0.3 per cent in the first quarter of 2023, following a decline of 0.5 per cent in the fourth quarter of the last year. ¡°In 2022, 4.4 per cent of India's total exports were to Germany, concentrated mainly in sectors like organic chemicals, machinery, electronics, apparel, footwear, articles of iron and steel and leather goods.

¡°Even though it's too early to see the impact of Germany's recession on India's exports, the sectors mentioned above will likely be the ones most affected,¡± he told PTI.

He said the entire European Union is dealing with the rising energy prices that have led to recession in Germany for two consecutive quarters.

¡°With its largest economy entering into a recession, the EU (European Union) as a whole is bound to feel contractionary pressures as well. Around 14 per cent of India's total exports is to the EU, with Germany being the top destination of Indian exports, followed by Netherlands, Belgium, Italy, and France,¡± he added.

Also Read: How To Be Financially Prepared For A Recession

$2 Billion Of India's Exports Can Get Impacted

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Citing a report, he said the think-tank Global Trade Research Initiative (GTRI) has estimated that the German recession will impact India's exports of value $2 billion, including products like smartphones, apparel, footwear and leather goods, as per PTI.

On investments from Germany, he said that a recession in the European nation might have an impact on its investments in India. However, it is likely that German companies may seek cheaper alternatives during recessionary conditions.

¡°This can lead to minimal effects on German investments in India,¡± Budhia added. Looking at India's FDI from 2000 to 2022, Germany ranks 9th in the total FDI inflow, and it has cumulatively invested over $13.6 billion in areas like transportation, electrical equipment, metallurgical industries, services sector (particularly insurance), chemicals, construction activity, trading and automobiles.

Also Read: India Has Zero Probability Of Slipping Into Recession, Reveals Survey

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