Global economy remains uncertain due to Omicron: RBI

The global economy remains hostage to heightened uncertainty, with the Omicron strain of the coronavirus sparking fresh containment measures, the Reserve Bank of India (RBI) has said.

The Indian economy bounced back strongly in the second quarter of FY 22, with the gross domestic product (GDP) surpassing its pre-pandemic levels and inflation broadly aligning with the target, the central bank said in its monthly bulletin released on December 15.

"A host of incoming high-frequency indicators are looking upbeat and consumer confidence is gradually returning. Aggregate demand conditions point to sustained recovery, albeit, with some signs of sequential moderation," the bulletin said.

On the supply front, the farm sector situation remained strong with impressive progress in rabi sowing, while the manufacturing and services recorded strong improvement on strengthening demand conditions and surge in new business, the bulletin said.

The Omicron spread had tempered the momentum of global growth and trade even as mounting inflation risks brought forward policy normalisation timelines in several countries, the bulletin said.

Overall monetary, credit conditions conducive for durable economic recovery to take root: RBI Bullet. RBI says prospects brightening for economy as second wave of COVID-19 wanes

Detected in southern Africa in late November, the Omicron strain is believed to be more infectious and is spreading quickly, though the evidence, so far, indicates that it doesn't cause severe illness.

The biggest fear, however, is that it can escape the available vaccines. Scientists are saying more studies are needed before drawing conclusions but countries across the world are bringing back restrictions to curb or delay the spread of the new mutated strain.

For the Indian economy, the recovery has been spearheaded by an uptick in private investment through November-December alongside a turnaround in bank credit offtake and high capex from the government sector (Centre and states).

"In conjunction, the employment situation has brightened. The outlook remains upbeat, though concerns revolving around the spread of the new Omicron variant are surfacing," the bulletin said.

The emergence of the Omicron strain had heightened the uncertainty in the global macroeconomic environment, accelerating risks to global trade with the resumption of travel restrictions and quarantine rules at major ports and airports, the bulletin said.

"The ongoing supply-side constraints are likely to keep input prices and freight rates at elevated levels and could act as a drag on overall exports. While the low domestic infection count and healthy pace of vaccinations augurs well for the economy, the looming threat of Omicron calls for observing greater caution and readiness to respond swiftly," the bulletin said.