MUMBAI: The Reserve Bank of India (RBI) on Thursday said the global economy is expected to tip into recession in 2020 as the covid-19 pandemic wrecks havoc on global production, supply chains, trade and tourism.
While India’s growth outlook remains grim, in a respite of sorts the risks the inflation projection are seen balanced, said the central bank in its bi-annual monetary policy report.
“The global economy is expected to slump into recession in 2020, as post-covid projections indicate. The sharp reduction in international crude oil prices, if sustained, could improve the country’s terms of trade, but the gain from this channel is not expected to offset the drag from the shutdown and loss of external demand,” the RBI report said.
The RBI also said domestic growth would depend on the speed with which the outbreak is contained and economic activity returns to normalcy.
It, however, expressed confidence that the monetary and liquidity measures undertaken by the RBI and the government’s fiscal measures would mitigate the adverse impact on domestic demand once normalcy is restored.
According to the report, inflation is expected to remain benign following the softening of food prices and a sharp fall in crude prices. The RBI expects inflation for fiscal 2021 to move in the range of 3.6-3.8%, assuming normal monsoon and no major shocks.
“Signals from forward-looking surveys and estimates from time series and structural models, CPI inflation is tentatively projected to ease from 4.8% in Q1:2020-21 to 4.4% in Q2, 2.7% in Q3, and 2.4% in Q4, with the caveat that in the prevailing high uncertainty, aggregate demand may weaken further than currently anticipated and ease core inflation further, while supply bottlenecks could exacerbate pressures more than expected,” the report added.
The central bank, however, warned that the impact of covid-19 on inflation is ambiguous, with a possible decline in food prices likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions.