Global economy is expected to go into recession in view of COVID-19 pandemic: RBI

The Reserve Bank of India (RBI) in its latest Monetary Policy report released today said the global economy is expected to go into recession after taking into account the impact of the COVID-19 pandemic.

It also says that aggregate demand is expected to be impacted adversely by likely recession in the global economy, caused by disruptions in global supply chains, travel and tourism, and lockdowns in many economies.

The February 2020 data released by the National Statistical Office (NSO) reveals that a sequential slowdown set in upon the Indian economy from Q1:2018-19. Over H2:2018-19 and H1:2019-20, real GDP growth lost momentum further, averaging 5.5 per cent. The sub-5 per cent reading for Q3:2019-20 (4.7 per cent) has caused heightened uncertainty about the outlook.

The reports say, "The oppressive force of the novel coronavirus (COVID-19) on weak or moderating high-frequency indicators of activity, barring agriculture, indicates that the implicit real GDP growth for Q4:2019-20 in the NSO's data release could be undershot by a fair margin. The widening incidence of COVID-19 in March 2020 may produce downward pulls to Q4 GDP."

It also says that the financial markets across the world are experiencing extreme volatility; global commodity prices, especially of crude oil, have declined sharply. COVID-19 would impact economic activity in India directly due to lockdowns, and through second-round effects operating through global trade and growth. 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.

The report suggests that while efforts are being mounted on a war footing to arrest its spread, COVID-19 would impact economic activity in India directly through the domestic lockdown. Second-round effects would operate through a severe slowdown in global trade and growth. It also says that the lockdown is expected to significantly lower aggregate demand in both rural and urban areas.