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Originally Posted by Karthik.guru I love this topic!
....who also happens to work in the development and public policy sector, I have a lot to say! ![Big Grin](https://www.team-bhp.com/forum/images/smilies/biggrin.png) |
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Good post but I am surprised that you have not covered the biggest macro-economic factor that influences auto sales -
Interest Rates.
First, in any economy, high growth leads to higher inflation (too much money chases too few goods). To bring down inflation, central banks (e.g. RBI) increases interest rates. Rising interest rates slows down growth, which brings down inflation. If growth slows down too much, central banks bring down interest rates to stimulate growth. And the cycle goes on.
Additionally, if there are major economic shocks (Dotcom bust in 2001, Global Financial crisis 2008, Covid pandemic 2020-21), central banks everywhere bring down interest rates rapidly to keep things cheaper and stimulate growth. But unfortunately, this brings in inflation and you see the cycle playing out.
To prove this, let me show you three charts:
First, the RBI interest
rates over last 2 decades:
I have marked the 3 major economic shocks and the drastic reduction in interest rates that happened.
Below charts are sourced from the fantastic "2023 Auto Sales Analysis"
thread.
The correlation of low interest rates with high growth in auto sales is very easy to see. For example, the world was coming out of the greatest financial crisis in 2009-10-11, yet auto sales zoomed because of low interest rates. Same for 2018 or 2022-23.
This economic cycle is well-known and well understood. Currently, we are in the high interest rate-slowing growth rate phase. We will have low or negative growth in 2024 and 2025. RBI is expected to reduce rates over the next 1-1.5 years, which will restart the growth cycle by 2026-27.
Pro-tip: If you are planning to buy a car by cash, now is the best time to do it. If you are planning to buy it on EMI, plan it late next year or early 2026. But again, more people buying it in 2026 will make the manufacturers increase the prices
![Smile](https://www.team-bhp.com/forum/images/smilies/smile.png)
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OT, contrary to popular belief, politicians everywhere know this. Follow the US presidential elections debate and you will see that politicians are critical of their central bank that interest rates are not being brought down to simulate growth.
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P.S. - happy to share links of articles and research papers about inequality and the poverty index in case anyone is interested !
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OT for this thread, poverty reduction and inequality are not mutually exclusive. Poverty reduction is an absolute measure. Inequality is a relative measure. A whole population can get out of poverty yet if some part of the population is growing at a faster rate than others, there will be growing inequality. Everybody being equally poor means there is no inequality. For poorer countries, it is necessary to focus on poverty reduction first. Inequality is a secondary goal.