RBI Bulletin: Post Dismal Q2, Indian Economy Showing Signs Of Recovery In H2 FY25

Resilient private consumption demand, record-level foodgrains production, and rural demand gaining momentum are likely to drive India's growth trajectory in the second half of the current financial year, according to the Reserve Bank of India's December bulletin.

While sustained government spending on infrastructure is expected to further stimulate economic activity and investment, global events may pose risks to the evolving outlook for growth and inflation.

These expectations have come as India's GDP figures for the July-September period showed growth at 5.4%, well below the forecast of the 7% annual GDP growth and 8.1% recorded in the same period a year ago.

"High-frequency indicators for the third quarter of 2024-25 indicate that the Indian economy is recovering from the slowdown in momentum witnessed in the second quarter, driven by strong festival activity and a sustained upswing in rural demand," the RBI staff paper said.

Prospects for rural consumption are also looking up with brisk expansion of rabi sowing, and as headline CPI inflation eased to 5.5% in November from 6.21% in October, the RBI staff paper said and does not necessarily reflect the views of the central bank.

Further, the global economy stands ready to enter 2025 with resilience as disinflation and monetary policy pivots gain traction led by recovering real incomes, steady labour markets, and a gradual revival in global trade.

However, challenges persist in the form of ongoing geopolitical tensions, concerns over growing protectionism, and a large public debt overhang.

"These developments have adverse implications for emerging market economies (EMEs), with their currencies and equities vulnerable to the sharp bouts of declines seen in 2024 in a highly uncertain environment for trade and capital flows," the staff paper said.