Category: Economy

Foreign inflows into Indian government bonds may decline in 2025 after a record high in 2024. The spike in 2024 was due to the debt being added to JPMorgan’s emerging market debt index.

Wei Li, head of multi-asset investments at BNP Paribas SA, said, “Foreign inflows in 2025 will remain strong but may not match 2024 levels.”

In 2024, overseas investors bought 1.24 trillion rupees ($14.5 billion) worth of Indian bonds under the fully accessible route. This route allows unrestricted foreign investment, and most bonds under it are now part of JPMorgan’s index.

Li highlighted that inflation, policy adjustments, and global market changes could impact capital flows. “Investors should stay cautious and closely watch market dynamics,” Li added.

Rate cuts in India are expected to begin in February 2025, but investors worry the easing cycle may be limited. Meanwhile, the Federal Reserve has already indicated fewer rate cuts for 2025.

Interest rate trajectories in India and the US, along with rupee movements, will heavily influence bond inflows.

The Finance Ministry expects the economy to grow by 6.5% in real terms in FY25. In its November economic report, the ministry highlighted a bright growth outlook for October to December. Rural demand remains strong, and urban demand is steadily improving in the first two months of the quarter.

India’s GDP growth slowed to 5.4% during July-September, marking a seven-quarter low. The ministry attributed this slowdown to softer public capital expenditure and weaker private investments. Global uncertainties, excess capacity, and fears of dumping further impacted private capex.

The ministry noted early signs of recovery in capital formation in the second half of FY25. Union Government capital expenditure is gaining momentum. Infrastructure and capital goods order books grew sharply during FY24 and the first half of FY25. These trends signal a pent-up investment drive that is expected to unfold in the coming quarters.

The Finance Minister emphasized that public investments will play a critical role in driving economic growth. With improving demand and renewed investment activity, the ministry remains optimistic about sustained economic recovery. The report underlines that growth fundamentals are strengthening despite short-term challenges, setting the stage for improved performance in FY25.

Prime Minister Narendra Modi on Wednesday laid the foundation stone of the Ken-Betwa River Linking Project. This interstate project aims to divert surplus water from the Ken River in Madhya Pradesh to the Betwa River, opening new opportunities for prosperity in the Bundelkhand region.

The project was first proposed by the National Water Development Authority (NWDA) in 1995 at an initial cost of ₹1,998.74 crore. Now estimated at ₹44,605 crore, the project will provide drinking water to 4.4 million people in 12 districts of Madhya Pradesh and 2.1 million people across 10 districts in Uttar Pradesh. It will benefit 2,000 villages, irrigate over 1 million hectares of farmland, and generate 103MW of hydropower and 27MW of solar energy.

During the event, PM Modi criticized the Congress for neglecting infrastructure development and failing to recognize Dr. BR Ambedkar’s contributions to water resource management. His remarks came amid Congress protests over alleged comments by Union Home Minister Amit Shah during a Constitution Day discussion in Parliament. While the Congress has accused Shah of disrespecting Ambedkar, the BJP claims the opposition misinterpreted his remarks and ignored Ambedkar’s role in nation-building.

The Ken-Betwa project symbolizes the government’s focus on water management and regional development, marking a step toward sustainable growth in Bundelkhand.

The UAE has become Africa’s largest investor in new business projects, committing $110 billion between 2019 and 2023, according to The Guardian, citing FT Locations. Of this, $72 billion has been allocated to renewable energy, surpassing investments from the UK, France, and China as traditional investors reduce their spending.

African leaders have welcomed the UAE’s growing focus on green energy and infrastructure. Ahmed Aboudouh, associate fellow at Chatham House, commented, “African countries urgently need this money for their energy transitions. However, Emirati investors often pay less attention to labor rights and environmental standards.”

The UAE’s investments align with its goal of diversifying away from oil and gas. Key contributors include Dubai’s DP World, which operates six African ports, and Abu Dhabi Ports, active in Guinea, Egypt, and Angola. Additionally, International Resource Holdings, linked to Sheikh Tahnoon bin Zayed, acquired a 51% stake in Mopani Copper Mines in Zambia through a $1.1 billion deal.

However, challenges remain. A $34 billion green hydrogen project in Mauritania is still at the memorandum stage. In Zambia, financial issues with state-owned ZESCO have delayed solar projects. Concerns about smuggling have also surfaced, with Swissaid reporting $115.3 billion in unaccounted gold exports to Dubai between 2012 and 2022.

Japan’s government announced on Friday that the economy experienced moderate recovery in December but flagged several potential challenges ahead. Key concerns include rising interest rates overseas and shifting U.S. trade policies.

Corporate Profits Show Signs of Slowing

The government downgraded its assessment of corporate profits for the first time since March 2023, citing a slower pace of recovery. “The economy is recovering moderately, although it appears to be pausing in parts,” the Cabinet Office stated in its monthly report.

Outlook Remains Cautiously Optimistic

Officials anticipate a continued moderate recovery, driven by improvements in employment and income levels. However, they remain cautious about external factors, particularly U.S. policies. President-elect Donald Trump’s proposed tariffs on imports from Canada, Mexico, and China could disrupt global trade, impacting Japan’s economy.

Higher interest rates in the U.S. and Europe, coupled with challenges in China’s real estate market, also pose potential risks, the report warned.

Economic Highlights

• Private Consumption: The government reaffirmed that private consumption, which makes up over half of Japan’s economy, is “picking up” due to wage recovery.
• Capital Spending: Investment spending by businesses continues to show signs of growth.
• Exports: The report noted exports remained “almost flat,” mirroring last month’s assessment.

India’s Product-Linked Incentive (PLI) schemes, launched in 2020, are transforming the manufacturing and export landscape. With a budget of Rs 1.97 lakh crore (USD 26 billion), the initiative boosts domestic production, exports, and job creation across 14 sectors.

Investment and Employment Growth

The Ministry of Commerce and Industry reports that PLI schemes have attracted investments worth Rs 1.46 lakh crore (USD 17.5 billion). Production under the initiative has reached Rs 12.5 lakh crore (USD 150 billion), while exports total Rs 4 lakh crore (USD 48 billion). Additionally, the program has generated 9.5 lakh direct and indirect jobs nationwide.

Key Sectors Leading the Charge

PLI benefits extend to key sectors, including Mobile Manufacturing, Pharmaceuticals, Automobiles, Telecom, Specialty Steel, and Advanced Chemistry Cell (ACC) Batteries. Over 1,300 manufacturing units have been established across 27 states and union territories, creating a diverse industrial base.

MSME Sector Boost

The scheme has significantly impacted the MSME sector by driving demand for ancillary units through anchor manufacturing facilities. This ripple effect has strengthened value chains and accelerated MSME growth.

White Goods Sector Success

The PLI scheme’s influence on the white goods sector highlights its effectiveness, fostering innovation and improving competitiveness across industries.

Prime Minister Narendra Modi participated in the ‘Ek Varsh-Parinaam Utkarsh’ event, marking one year of Rajasthan’s state government.

Addressing the gathering, he congratulated the Rajasthan government and its people on completing a successful year. He praised Chief Minister Bhajanlal Sharma and his team for driving development in the state.

PM Modi highlighted the positive impact of these development efforts. He stated that the initiatives will attract investors, create jobs, boost tourism, and benefit farmers, women, and youth in Rajasthan.

He emphasized the government’s support for solar power installations on rooftops and in agricultural fields. Under the PM KUSUM scheme, Rajasthan plans to set up hundreds of new solar plants. He said that when families and farmers become energy producers, their household income will increase.

The Prime Minister also highlighted the long-term benefits of Rajasthan’s modern infrastructure projects. He noted that these efforts would benefit both current and future generations, contributing to a stronger Rajasthan and a more developed India.

Japan aims for renewable energy to supply 50% of its electricity mix by fiscal 2040. Nuclear power will cover an additional 20%, according to a draft of the revised basic energy policy.

This shift is part of Japan’s push for clean energy while meeting rising power demand. As the world’s second-largest importer of liquefied natural gas (LNG) and a major buyer of Middle Eastern oil, Japan’s energy plans are closely watched by global oil, gas, and coal producers.

Thermal power use, especially from inefficient coal-fired plants, will drop from 68.6% in 2023 to 30-40% by 2040. The draft does not detail the share of coal, gas, and oil within this percentage.

“LNG-fired power is a realistic transition tool,” the draft states. It calls for joint efforts from the government and private sector to secure long-term LNG contracts to guard against price hikes and supply disruptions.

The industry ministry’s draft proposes raising renewables to 40-50% of power supplies by fiscal 2040. This target nearly doubles the 22.9% share in fiscal 2023 and surpasses the 36-38% goal set for 2030.

Argentina’s economy saw a near 4% boost in the third quarter of 2024, marking the end of its recession. This growth outperformed analysts’ expectations, signaling a shift in economic momentum.

Despite the quarterly growth, overall activity remains below 2023 levels. Argentina’s GDP in the third quarter was 2.1% lower than the same period last year. However, this result is an improvement compared to earlier quarters, which recorded declines of 5.2% in Q1 and 3.4% in Q2.

The INDEC national statistics bureau published fresh data on Monday, confirming the positive shift. Between July and September, GDP grew by 1.6%, marking the first quarterly increase in over a year.

This growth is particularly notable as it’s the first time Argentina’s GDP has risen since President Javier Milei took office last December. After three consecutive quarters of decline, this turnaround offers a glimmer of hope for the country’s economic outlook. Analysts had forecasted more modest growth, but Argentina’s economy has exceeded those predictions. The shift in GDP trends indicates potential stability and recovery, though the nation’s economic activity still has ground to cover to reach 2023 levels. The next quarters will be crucial in assessing sustained progress.

India’s private sector output grew at its fastest pace in four months, driven by stronger demand in services and manufacturing. Preliminary survey data showed record job growth, helping the economy close 2024 on a high note.  

The HSBC December flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 60.7, matching August’s figure. This marked an increase from November’s 58.6. The PMI has stayed above 60 for most of the year, a level of strength not seen since 2008. The 50-point mark separates growth from contraction.  

Economist Ines Lam from HSBC attributed December’s manufacturing PMI rise to gains in production, new orders, and employment. “The quickening expansion in new domestic orders points to stronger growth momentum,” Lam said.  

Demand growth was most notable in the services sector, where the PMI climbed to 60.8 from November’s 58.4, hitting a four-month high. The manufacturing PMI also rose to 57.4 from 56.5 last month. Service providers saw a surge in sales, with the new business sub-index reaching its highest level since January.  

International demand for both goods and services also increased, with goods experiencing a faster rise than services. While India’s economy grew at a slower 5.4% last quarter, easing inflation is expected to support stronger private sector demand in 2025.