Omicron impact: Global economy remains hostage to uncertainty, says RBI bulletin

Sounding alarm over COVID-19's new Omicron variant, the Reserve Bank of India (RBI) has said that the global economy remains hostage to heightened uncertainty, with the new virus strain sparking fresh containment measures. It noted that "surging infections, supply chain snags, logistic disruptions and inflation touching multi-year highs in several economies."

In spite of these global headwinds, the Indian economy bounced back strongly in the second quarter of FY22, 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 Wednesday.

"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 added.

Furthermore, RBI observed the ongoing revival is driven by a confluence of factors -- release of pent-up demand, government's push for capital expenditure, robust external demand and normal monsoon.

Faster resumption of contact-intensive services and speedy restoration of consumer confidence brightens near-term prospects, it said.

Highlighting the impact of the Omicron variant, RBI bulletin noted that the new COVID-19 strain has tempered the momentum of global growth and trade, even as mounting inflation risks have brought forward policy normalisation timelines in several countries.

The Omicron coronavirus variant, reported in more than 60 countries, poses a "very high" global risk, with some evidence that it evades vaccine protection but clinical data on its severity is limited, the World Health Organization recently warned.

Considerable uncertainties surround Omicron, first detected last month in southern Africa and Hong Kong, whose mutations may lead to higher transmissibility and more cases of COVID-19 disease, the WHO said earlier.