Downward revision of global GDP imminent amid West Asia crisis; inflation is likely to go up
The report, published ahead of India’s upcoming Monetary Policy Committee (MPC) meeting, pointed to increasing uncertainties in the global macroeconomic environment and stated that “there has been no revision in global GDP growth forecasts so far, but a downward revision appears imminent.”
Also read: RBI expected to keep rates steady in first monetary policy since West Asia conflict: SBI Report
The report emphasized the impact of ongoing geopolitical conflicts, especially in West Asia, and stated that disruptions in energy markets began to be reflected in broader economic indicators. Stating that “inflation is predicted to increase and the pass-through in high energy and metal prices is reflected in the prices,” he increased concerns that a new phase of global price instability has begun.
The report also warned of a possible stagflation scenario if current conditions persist. “If the war is prolonged, the risk of stagflation will be higher in 2026,” the report said, adding that G20 inflation “can be predicted to be 1.2% higher” due to constant pressures from commodity markets.
The global growth outlook remains modest for now, with overall growth pegged at around 3.2 percent. India, on the other hand, is expected to maintain its relative resilience with a projected growth rate of 7.2 percent in FY27. However, the evolving global situation, including trade disruptions and financial volatility, may weigh on these forward-looking forecasts.
The report also highlighted serious disruptions in energy supply chains, especially due to restrictions on key maritime routes. The report stated that “the de facto closure of the Strait of Hormuz and the damage to regional infrastructure has caused the largest disruption in the history of the global oil market since 1973” and that this has significantly affected oil flows and prices.Also read: India’s exports to other parts of the world will be affected if West Asia crisis continues: Official
For India, these global developments translate into increasing macroeconomic pressures. The report observed that “the steady trend of crude oil above $100 per barrel has led to a jump in imported inflation”, while the rupee has weakened beyond the level of 93 per dollar, increasing external vulnerabilities.
Imported inflation, in particular, emerges as a major source of concern. The report stated that “imported inflation… is currently at 5.4%… and is expected to increase further” and pointed out that consumer price inflation (CPI) may remain high in the coming quarters. “The CPI trajectory… could indicate inflation of more than 4.5% for the next 3 quarters,” he added.
Overall, the report paints a cautious picture of the global and domestic economic landscape, marked by slowing growth, rising inflation and increasing uncertainty driven by geopolitical tensions and climate-related risks.
