The Indian economy is likely to enter a recession phase for the first time in the second quarter (July-September) of the current financial year, and the Gross Domestic Product is expected to contract by 8.6%, the Bank said. of the Reserve of India in a bulletin. released Wednesday.
Technically, a country’s economy is said to go into recession when its GDP growth is negative for two or more consecutive quarters. India’s economy had contracted an unprecedented 23.9% in the first quarter (April-June) of this financial year, after being hit by the coronavirus pandemic and the subsequent economic slowdown.
In an article titled “State of the Economy,” the central bank in its bulletin “predicted” the contraction of the second quarter based on the quarterly results reported by 887 listed nonfinancials, whose sales remained in contraction in the second quarter. Nowcasting is the prediction of the present or very near future of the state of the economy.
The RBI, however, noted that the contraction is “decreasing with the gradual normalization of activities and is expected to be short-lived.” The central bank cited improvements in indicators such as aggregate demand, tax collection on goods and services and manufacturing activities to suggest the economy is picking up.
The RBI also said that the National Statistical Office will formally announce GDP figures for the second quarter at the end of November.
Inflation will remain high
In addition to the contraction of the economy, the central bank also pointed to the downside risk of high inflation in the coming months.
“The most important [risk] it is the relentless pressure of inflation, with no signs of abating despite supply management measures, ”observed the RBI. He said inflation levels can result in “a loss of credibility in policy interventions,” affecting “nascent growth impulses.”
Retail inflation in September rose to 7.34%, the highest since January, and well above the RBI’s mandatory range of 2% to 6%. October inflation figures are expected to be released on Thursday.
Aside from the shock over the price hike, the RBI noted two more concerns, that of a second wave of the virus and “intensifying stress among households and businesses that has been delayed but not mitigated.” The central bank said that a second wave of Covid-19 may have an effect on collapsing external demand, while stress on households and businesses risked spilling over into the financial sector.
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