Washington: The biggest risk facing emerging market economies is growing evidence that global growth and trade is weakening, Reserve Bank of India (RBI) Governor Shaktikanta Das has said.
At the same time, emerging markets face a wave of global spillover risks leading to capital outflows, currency and asset price volatility besides tightened financial conditions, posing risks
to growth and inflation.
Unsettled trade tensions and developments around Brexit are imparting further downside risks to the outlook, said Das.
“There is considerable uncertainty as to whether this weakness is temporary or the beginning of a recession in advanced economies,” he said while addressing the event ‘Governor Talks’ on the sidelines of International Monetary Fund-World Bank Spring Meetings.
The risk of sudden stops and reversals of capital flows can aggravate existing stress in the balance sheets of lending institutions in some emerging markets and stretch their capital requirements, said Das on Friday.
“For net energy importers like India, the recent firming up of oil prices on production cuts by major suppliers presents risks to current account deficit and inflation. Emerging economies also need to explore alternatives to reduce dependence on conventional energy sources, and give greater focus on renewables and energy efficiency.”
India is expected to clock a real GDP growth of 7.2 percent during 2019-20 and continue to rank as the fastest among large economies of the world.
Inflation has been averaging 3.6 percent and current account deficit is expected to be about 2.5 percent of GDP.
Looking ahead, said Das, the priority should be to remain watchful and take coordinated action to revive growth and maintain macroeconomic, financial and price stability.