Growth rebounding as demand regains strength, says latest RBI bulletin
MUMBAI: Economic growth, which surprisingly slumped to a seven-quarter low of 5.4% in the second quarter, is on a rebound as demand has regained momentum, though the stickiness in food inflation warrants careful monitoring, the latest RBI bulletin has said.
The surprise deceleration of growth in the September quarter had led to a rash of downgrades and cat calls for rate cuts. The list of forecasters pegging lower-growth was led by the central bank itself. In the December monetary policy, it slashed its own forecast in October by 60 bps to 6.6 percent while many analysts from the private sector pegged growth much lower ranging in the 6 to 6.2 percent. This also had many calling for rate cuts.
While noting the divergent growth trends in the global economy, the article in the January bulletin notes, however, that for the domestic economy, the sunshine has returned as consumption demand is back.
“Back home, there is a conducive quickening of high-frequency indicators of economic activity in the second half of the current fiscal, bearing out the implicit pick-up in real GDP growth for this period in the annual first advance estimates of the NSO," the article penned by Michael Patra, who retired on January 15 as the deputy governor after a long career since the mid-1980s, said.
"Our economic growth is poised to rebound as domestic demand regains strength with rural demand continuing to gain momentum, reflecting a resilience in consumption, supported by brighter agricultural prospects," the article said.
On global growth, the article notes that the overall economic outlook for 2025 is divergent across countries. The US, Japan and Europe are witnessing weak-to-modest recoveries while more moderate growth profiles are taking place in emerging and developing countries alongside a more gradual disinflation relative to advanced economies.
It further said that the headline inflation eased for the second successive month in December, although the stickiness in food inflation warrants careful monitoring of second-order effects.
The article said a revival in public capex on infrastructure is likely to stimulate growth in key sectors going forward.
It also noted that rising input cost pressures in the manufacturing sector, coupled with weather-related exigencies and global headwinds, could, however, pose risks to this outlook.