RBI's Monetary Policy Report forecasts global recession

Outlining a grim picture for the global economy amid the coronavirus crisis, the Reserve Bank of India`s (RBI) Monetary Policy Report says that the global economy may slump into recession in 2020.

The report noted that the the coronavirus pandemic, lockdown and the expected contraction in global output will weigh heavily on the growth outlook. The actual outturn would depend upon the speed with which the outbreak is contained and economic activity returns to normalcy, said the Monetary Policy Report for April 2020.

"The COVID-19 pandemic has drastically altered this outlook. The global economy is expected to slump into recession in 2020, as post-COVID projections indicate," it said.

The sharp reduction in international crude oil prices, if sustained, could improve India`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, it added.

The central bank`s report noted that significant monetary and liquidity measures taken by the Reserve Bank and fiscal measures by the government would mitigate the adverse impact on domestic demand and help spur economic activity once normalcy is restored.

"Risks around the inflation projections appear balanced at this juncture and the tentative outlook is benign relative to recent history. But COVID-19 hangs over the future, like a spectre," it said.

Overall, apart from the continuing resilience of agriculture and allied activities, other sectors of the economy will be adversely impacted by the pandemic, depending upon its intensity, spread and duration, it said.

Relatively modest upsides are expected to emanate from monetary, fiscal and other policy measures and the early containment of COVID-19, if that occurs, it said, adding that such uncertainties make the forecasting of inflation and growth highly challenging.

It further said that due to the the highly fluid circumstances in which incoming data produce shifts in the outlook for growth on a daily basis, forecasts for real GDP growth in India are not provided in the Monetary Policy Report, awaiting a clear fix on the intensity, spread and duration of COVID-19.

It noted that lower global output and demand can impact the Indian economy through a variety of channels. First, it can affect exports adversely, leading to lower domestic demand, growth and inflation. Second, international crude oil and other commodity prices have already softened sharply amidst high volatility and India, being a net importer, can benefit from the lower commodity prices.

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"Finally, heightened global financial market volatility can feed into domestic financial markets and impact both growth and inflation,a it said.