By Ulf Bergman
In line with the IMF and many other institutions, the World Bank has revised its projections for the global economy upwards. It now expects the global GDP to expand by 5.6 per cent this year, which would be the strongest post-recession global growth in 80 years. The organisation is also expecting next year’s growth to be stronger than it anticipated back in January, at 4.3 per cent. While the global economic growth is expected to continue beyond next year, 2023 will represent a return to more normal levels at just over three per cent. The World Bank also highlighted the fragile nature of the recovery, with a great dependency on stimulus programmes, and the disparity between rich and poor nations. Much of the impressive rebound can be attributed to the continued strength in the US and Chinese economies, which the World Bankanticipates will grow by 6.8 per cent and 8.5 per cent respectively this year.
While the global projections were upgraded, the World Bank revised its projection for the Indian economy downwards for the fiscal year 2021-22. The extensive second wave of COVID-19 infections has reduced the country’s economic output, as imposed mobility restrictions have taken their toll on industrial production and services. Hence, a soft second quarter has been incorporated into many forecasts. From a previous expectation in the double-digit territory, the economy is forecast by the World Bank to deliver a nevertheless healthy 8.3 per cent growth. The consensus among economist surveyed by Bloomberg predicts a GDP growth at 9.5 per centfor the year, which is a percentage point below the previous estimate.
There has been a recent surge in reported COVID-19 deaths in the Asian nation, but it has been suggested that this the result of the previous under-reporting rather than increasing infection rates. The daily rates of new cases have fallen from their peak, but India is still struggling to curb the spread of the virus and accelerate the pace of vaccination. There are also signs that the Indian economy is regaining its traction, with mobility data improving from recent lows implying acontinued normalisation would restrict the economic disruptions to the second quarter. The Reserve Bank of Indiaalso retained its pro-growth stance during last week’s meetingand ruled out an interest rate hike to control rising inflationary pressures. Instead, the RBI expanded its quantitative easingprogramme and it looks likely that increasing inflation from rising commodity prices will be tempered by allowing the rupee to appreciate instead.
Despite the recent bad news coming out of India, the country’s imported volumes of coal have been recovering in recent months. The world’s second-largest importer of seaborne coal saw volumes almost back at the pre-pandemic levels of 2019 in May, with a year-on-year increase of 68 per cent. So far this month, volumes are approaching 80 per cent of the total for June last year. If the flow of coal discharged in Indian ports continue at the same pace for the rest of the month, imported volumes could be greater than what was seen during the same month in 2019.
The ongoing diplomatic tensions between China and Australia have seen Australian coal shipments to Chinese ports reduced to virtually zero, with producers forced to find alternative markets. As a result, Indonesia has lost its previously dominant position in India’s market for imported coal. Prior to the Chinese ban on imports of Australian coal, Indonesian coal exports to India were more than twice as large as Australia's. However, so far this year, Australia has doubled its market share and grabbed the top spot, slightly ahead of Indonesia. The 39 million tonnes of Australian coal discharged in Indian ports year-to-date, represents 79 per cent of the average of the preceding six full years.
The recent attempts by Chinese authorities to control the rapidly rising commodity prices have had limited lasting effects, with coal trading at levels not seen since the second half of 2011. Robust global demand and a tight supplysituation, following heavy rains in Indonesia and mining accidents in China, have negated Beijing’s efforts. The domestic Chinese coal prices have risen so much that the government is considering imposing a cap on them. However, the current hot weather in North Asia has increased thedemand for coal from powerplants, adding to the already strong demand due to the industrial recovery from the pandemic. With domestic production curtailed due to accidents and safety inspections, it may be difficult to control the prices amid surging demand unless increased imports are allowed. In the event of increasing Chinese coal imports, the Australian supplies look likely to remain off-limits to Chinese buyers. Hence, India may face more competition from China over coal supplies from Indonesia and South Africa, with prices likely to remain firm.
While the coal trade is considered to be in long-term decline, demand is currently on the rise and can be expected to remain strong for another decade. Despite this, there are currentlyonly a limited number of new coal mines being developed. Political pressure and difficulties finding financing make many projects unrealistic. Hence, it is more a question of increasing the output from existing sites. One of the fewexceptions is the Carmichael mine in northeast Australia, which is being developed by India’s Adani Group and will have an annual production of ten million tonnes once operational later this year.