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- The balance of risks is increasingly tilted towards a darkening global outlook and emerging market economies (EMEs) appear to be more vulnerable, even though incoming data suggest that global inflation may have peaked, Reserve Bank of India officials led by Deputy Governor Michael D. Patra wrote in an article in the December edition of the RBI Bulletin.
- Assessing the ‘State of the Economy’, they observed that the near-term growth outlook for the Indian economy was supported by domestic drivers as reflected in trends in high frequency indicators.
- “Equity markets touched a string of new highs during November buoyed by strong portfolio flows to India. Headline inflation moderated by 90 basis points to 5.9% in November driven by a fall in vegetables prices even as core inflation remained steady at 6%,” they wrote in the article.
- “Waning input cost pressures, still buoyant corporate sales and turn-up in investments in fixed assets are heralding the beginning of an upturn in the capex cycle in India which will contribute to a speeding up of growth momentum in the Indian economy,” they added.
‘Stubborn at its core’
- However, from a global perspective, while “inflation may be slightly down, but it is certainly not out.
- If anything, it has broadened and become stubborn, especially at its core,” they cautioned.
- “An unease hangs over energy prices: for now, OPEC plus stayed its hand in cutting production, but an oil price cap threatens to unleash disruptive financial forces, with hedge funds already cutting net long positions in crude contracts.
- Despite moderation in global commodity markets, climate change and the war in Ukraine are set to keep food prices at higher than pre-pandemic levels.”
- Observing that major developed economy central banks appeared to be in “no mood to ease off in their fight against inflation”, they warned that “disinflation” was about to become painful.
- “Financial conditions, and especially borrowing costs, are biting into discretionary consumer spending and housing demand, and stalling investment in new capacity creation.
- With every passing day, the balance of risks gets increasingly tilted towards a darkening global outlook for 2023, the year that will bear the brunt of monetary policy actions of this year,” they noted.
- On the domestic front, they said the OECD had in November noted that India was the only major economy that may post growth above 5.5% in 2023, 2024.
- Citing an Activity Index based on a set of 15 high frequency indicators that showed activity remained above pre-pandemic levels they said, “our latest nowcast places real GDP growth at 4.3% for Q3”.
SOURCE: THE HINDU, THE ECONOMIC TIMES, PIB
