Expect 'good' recession, Tech Mahindra chief says as Davos economists offer bleak outlook

Several reasons to remain optimistic that impact of global downturn may be less than feared, CP Gurnani says

The Schatzalp funicular railway ahead of the World Economic Forum in Davos, Switzerland, on Monday. Bloomberg
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Any global economic contraction may end up being a “good” recession during which high employment levels and spending could still be sustained, according to the chief executive of one of the world’s largest IT services companies.

There are several reasons to remain optimistic despite bleak economic forecasts for the year ahead, CP Gurnani told The National on Monday in Davos on the eve of the World Economic Forum’s Annual Meeting.

China relaxing its Covid-related restrictions should result in an increase in consumption as it opens up. South-east Asia, India and the Middle East will all perform well, he said.

Winter in Europe has so far been milder than feared, which will help ease the energy crisis, Mr Gurnani added.

Also, the recent announcement of the shedding of thousands of jobs in the technology sector by companies such as Amazon and Meta does not necessarily point to a longer downward trend, he said.

“In the US, when you look at those job losses, you'll also remember that they over-hired to meet the demand in the previous three years. So, in a way they're adjusting, but if overall, when I look at us, I always think it will be a good recession,” said Mr Gurnani.

“The good recession is when there is still demand of the jobs. There are challenges and the Fed will have to figure out a method of balancing an ugly word like recession, and the good part where there are more jobs available, and not enough people.”

On Monday, the World Economic Forum said almost two-thirds of chief economists it surveyed believe a global recession is likely this year as a result of inflation, high debt and economic fragmentation.

All said they expect at least weak or very weak growth in Europe, while 91 per cent forecast the same for the US.

In China, they are almost evenly split between those who expect weak and strong growth.

However, margins will prove resilient, according to Mr Gurnani.

“Yes, the costs are going up. But the clients are also willing to pay more. Because they understand that it is an indexed economy,” he said.

“If the inflation or the cost of living goes up, then somewhere somebody needs to compensate. So, it will compensate by higher wages, higher delivery costs … [this] effectively means is better pricing of your products. So, I again, want to repeat that things have a lot of silver spots.”

He is also “very confident” about the outlook for India.

“The worst estimate is 6.5 per cent growth, best estimate is 9 per cent growth. So, we are talking growth,” he said.

India’s investment policies, growth of manufacturing, strong ecosystem of engineering colleges, and a focus on innovation and research and development “is bringing fruit”, Mr Gurnani added.

On climate action, technology companies can support improvements in efficiency and introduce measurement for sectors to reduce carbon emissions, he said.

However, he said the process would be faster if there were international “uniform gold standards” agreed on “input, output and how to minimise” emissions to support the push to net zero.

“Is there a way of becoming a net-zero company faster? I think, yes, there is, as long as we recognise and give credit to not only what we consume, but we look at our supplier ecosystem, we look at measurements at all levels,” Mr Gurnani said.

Updated: January 16, 2023, 3:27 PM