It appears that global growth momentum has clearly entered a contractionary zone, possibly on the back of heightened uncertainties, the report said
India seems to have managed the global uncertainty quite well till date, with leading indicators continuing to show acceleration, said the State Bank of India in a report.
At a global level, the Russia-Ukraine conflict’s global macroeconomic effects, for now, seem to have moderated. The conflict is influencing direct trade effects, energy and commodity prices, confidence, and policy responses, particularly in China.
Inflation has moved as a policy challenge. Higher U.S. dollar rates are tightening financial conditions, moderating growth, and spilling over to other economies, while the ECB tightening will be much more gradual.
“Against this backdrop, the average real GDP y-o-y growth in Q2 2022 for 20 economies at 4.9 per cent is lower than the preceding quarter due to muted growth in major countries like China, Japan, Germany and US,” it mentioned
The report mentioned that there has been a rebound of portfolio capital inflows since July 29 with a capital inflow of around USD 6.7 billion, with crude declining to below USD 100 and inflation also declining.
At this rate, portfolio capital flows in the current fiscal could now turn positive from an outflow of USD 14.7 billion till July 29, it added.
“We expect a direct investment of around USD 45 billion, other investment of USD 30 billion and FII inflows of USD 15 billion, thereby leading to an overall Balance of Payment deficit of USD 40-45 billion, that could be further scaled down with evolving situations,” it said.
The report, however, mentioned that recently with the USD index again moving up to 108, the rupee has witnessed weakening trends.
Meanwhile, an interesting development is taking place in the global currency market that might eventually thwart this USD uptick.
There has been a significant jump in the demand for Yuan arising from short-circuiting the sanctions in place by corporates in select jurisdictions who have been utilising the multitude of non-dollar currencies to procure Crude and other commodities, viz. coal through striking deals in Renminbi/HKD/AED pairs at discounted rates, it said.
Clearly, the series of rate hikes in the US and even in India seem to have no major impact on the US labour market and growth outlook in India.
“This could open up opportunities for more rate hikes by Fed and even RBI MPC minutes suggest some more rate hikes even as inflation is expected to significantly moderate in H2FY23,” the report stated