The global recovery is expected to suffer a significant loss of momentum in 2022, the Reserve Bank of India's annual report showed.
The risks are large and to the downside from the escalation in the Russia-Ukraine war leading to shortages of raw materials as global supply chains continue to remain distorted, even before they could recover from the pandemic-led distortion, said the RBI.
The report showed that the resurgence of the pandemic, a slowdown in China, and the climate stress overshooting the Paris agreement goals were the other economic worries for the world.
Still, amidst these adverse international developments, the Indian economy is relatively better placed to strengthen the recovery underway and improve macroeconomic prospects as we advance, the RBI said.
While the Indian central bank raised key interest rates in an off-cycle meeting in May, the RBI said monetary policy remains accommodative but focused on the withdrawal of accommodation. Priority has been assigned to containing inflation within the target while supporting growth.
The report added that India's economic recovery from the pandemic depths had been sustained in 2021-22, and the momentum is expected to continue in 2022-23 broadly, but with risks to the downside from the geopolitical shock and its spillovers.
Still, despite these risks, the recovery is getting entrenched and is broadening, said the RBI.
With inflation surging worldwide, the report showed the central bank's dilemma - tame rising price pressures without hurting economic growth.
The persistence of high inflation is forcing countervailing monetary policy action at a time when supporting the economic recovery should have been assigned priority, said the RBI.