Economic Growth Current Affairs - 2020

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Retail Inflation at 5-year high of 7.35% in December, 2019

According to the data released by Ministry of Statistics and Programme Implementation on January 13, 2020, the food inflation increased to 14.12% in December 2019 as compared to 10.01% in November 2019. The CPI (consumer Price Index) rose to 7.35% as compared to 5.54% the previous month. The inflation was increase was mainly due to vegetables

Highlights

In December 2018, the food inflation was -2.65%. Vegetable inflation in urban areas touched 75% and at the country sides it was at 53%. Onion inflation doubled as compared to the previous month. It was 128% in November and it increased to 328% in December.

Analysis

The soaring crude oil prices due to the increasing tensions between Iran and US is the major reason. In the coming Budget, GoI is expected to increase its spending largely on infrastructure and cut taxes. This might stoke inflation further.

RBI

For the first time, the inflation has breached RBI’s target inflation of 4% (±2%). Predicting the situation, RBI had kept its policy interest rates on hold in its policy review of December 2019.

Implications

As inflation increases, the following can be expected

  • Increase in interest rates that will increase cost of borrowing
  • Slow-down in investment and economic growth

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World Bank’s Global Economic Prospect: World Economic Growth projected at 2.5%

On January 9, 2020, the World Bank released its Global Economic Prospect. According to its forecast, the world is expected to grow economically at the rate of 2.5%. This is the lowest prediction since that predicted in 2008-09, 3.1%. By then, the global financial crisis derailed the economy.

Highlights

The report says that investment and trade in the country is expected to recover. However, the downward risks from 2019 are to continue. It also said that the advanced economies are to slip their growth by 1.4% as the manufacturing sector continues to soften.

The emerging markets in the developing economies are to witness acceleration in their growth according to the report. However, this is not applicable to all. A third of developing countries are expected to decelerate this year. Predominantly the growing economies are located in South and South East Asia.

South Asia

Growth in South Asia is expected to rise by 5.5% in 2020. The report predicts India’s growth rate at 5%. It is expected that the credit from non-banking companies to expected to weaken. The report also says that India will see a growth rate of 5.5% in the subsequent year.

The United States is expected to grow at 1.8% and European Union is projected to slip its growth by 1% in 2020.

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