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Synopsis: The post pandemic trajectory of economy has some trends and facts which are both challenging as well as encouraging.
Introduction
The current economic cycle is a rare one, induced by a major public health shock.
To revive the economy, massive monetary stimulus was provided by various central banks by following loose monetary policy.
We are now at that point in the cycle where major central banks have begun to signal normalisation from the unprecedented loose monetary policy stimulus.
However, globally the data signals that the ‘recovery momentum‘ in the first half of 2021 is decelerating in many countries.
What are the current trends and challenges w.r.t economic recovery?
–China’s policy and economy is the most salient risk for a sustained global recovery.
–Inflation in almost all major economies continues to remain high. Crude oil prices remain the biggest concern besides inflation in natural gas, metals, minerals, ores, and select foods.
-A risk of the global economy going into “stagflation(growth stagnation plus inflation)”.
In India, RBI notes that “the external environment, which had been supportive of aggregate demand over the past few months, may lose momentum for a variety of reasons” including exports, financial markets volatility and imported inflation.
What are some trends indicating continuation of economic recovery of India?
Demand for both consumer non-durables (FMCG) and durables is doing well. Owing to festive season demand for consumer loans is strong.
As the economy opens up, with risk of a third wave receding, demand for “contact” services in travel, tourism, entertainment, etc, is evident.
–Rural demand for FMCG has remained robust, post the rabi harvest, which are likely to continue with the largely normal ongoing kharif crop season.
–Urban demand is also reviving.
Real estate is reportedly doing well.
–Residential real estate is reportedly doing exceptionally well, with low-interest rates on home loans, cuts in stamp duty and registration charges, and behavioural shifts towards own home ownerships.
–Commercial real estate sector is reviving, with demand from IT, tech, data centres, and city centre warehousing for e-commerce companies.
Inflation-India’s retail price inflation rate eased to 4.35 percent in September of 2021 mostly due to lower food prices.
Source: This post is based on the article “Mixed signals on growth-inflation dynamics” published in Indian Express on 2nd November 2021.
