RBI Bulletin: The Economy Is Recovering From the Second Quarter Slowdown

According to a December bulletin article on the "State of the Economy," the world economy is still resilient, growing steadily and experiencing moderate inflation.

According to a Reserve Bank of India (RBI) bulletin published on Tuesday, robust festival activity and a persistent increase in rural demand are driving the Indian economy's recovery from the slowdown in momentum observed in the September quarter.

According to a December bulletin article on the "State of the Economy," the world economy is still resilient, growing steadily and experiencing moderate inflation.

"High frequency indicators (HFIs) for the third quarter of 2024-25 indicate that the Indian economy is recovering from the slowdown in momentum witnessed in Q2, driven by strong festival activity and a sustained upswing in rural demand," it stated.

According to the report, the growth trajectory is expected to improve in the second half of 2024–2025, mostly due to strong domestic demand for private consumption.

"Rural demand, in particular, is increasing thanks to record-level foodgrain output. According to the authors, sustained government investment in infrastructure is anticipated to boost investment and economic activity even more.

However, the study, which was written by a team led by RBI Deputy Governor Michael Debabrata Patra, stated that global challenges pose risks to the changing outlook for GDP and inflation.

During the July-September quarter of the current fiscal year, India's GDP growth dropped to a seven-quarter low of 5.4%.

According to the article, manufacturing is the primary issue on the production side and fixed capital creation is the main element for the economy's growth rate to drop on the expenditure side.

"Inflation undermines both. "Weakening sales growth of listed non-financial nongovernment corporations is a stark reflection of the erosion of purchasing power caused by repeated inflation shocks and ongoing price pressures," the statement stated.

They continue to have a pessimistic view of demand conditions because there appears to be no end in sight to the frequency of price shocks; they will be more likely to pass on input costs to selling prices.

Consequently, investing in fixed assets does not result in the establishment of robust capacity. According to the paper, companies are instead churning and using their current capacity to meet the inflation-dented consumer demand.

"Lackluster private investment is the outcome. It stated that weaker corporate salary growth appears to be linked to the slowdown in consumer demand.

The slower pace of nominal GDP growth, according to the authors, is another obstacle that could make it more difficult to spend fiscally, notably on capital expenditures, in order to meet debt and budget deficit targets.

The report also stated that real GDP growth is anticipated to rebound to 6.8% and 6.5% in Q3 and Q4 of 2024–2025, respectively, according to estimates based on the internal Dynamic Stochastic General Equilibrium (DSGE).

While headline CPI inflation (retail) is expected to be 3.8% in 2025–2026, growth is predicted to be 6.7%.

The RBI had forecast GDP growth for 2024–2025 at 6.6% in the December monetary policy, with Q3 at 6.8% and Q4 at 7.2%. GDP growth was predicted to be 6.9% in the April quarter of 2025–2026 and 7.3% in the second quarter.

According to the RBI, the opinions presented in the bulletin are those of the writers and do not always reflect those of the central bank.