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War between Russia and Ukraine continues to keep global commodity prices elevated. On the other hand, rise in Covid-19 cases in China has slowed the momentum
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The war between Russia and Ukraine has dented global growth prospects and has led to IMF and World Bank slashing their global growth forecasts for 2022 to 3.6 per cent and 3.2 per cent, respectively.
Building up of price pressures, translating into higher global inflation and withdrawal of monetary policy support by major central banks is also expected. US Fed is likely to hike rates in its upcoming May’22 meeting.
Elevated CPI will take precedence over contraction in Q1CY22 GDP. Currently, international crude price are hovering near USD 109/bbl with 10 per cent (MoM) increase since the war started. Prices of food and edible oil too remain elevated.
Deviation in global Central Banks:
While US Fed has indicated aggressive policy tightening in the coming months, ECB is also expected to follow the same path soon. It has hinted at ending its bond purchase program, and raising rates soon. On the other hand, BoJ and PBOC continue to maintain accommodative monetary policy.
While BoJ has vowed unlimited bond buying, PBOC has announced RRR cuts to stimulate growth.
Latest data shows that India’s eight core industries eased to 4.3 per cent in Mar'22 compared with a growth of 6 per cent in Feb'22. This was led by moderation in refinery products, natural gas, and steel output.
Separately, India’s exports rose to a historic-high of USD 42.2 bn in Mar’22 from USD 34.6 bn in Feb’22. In FY22, exports have risen to USD 416.3 bn, surpassing the government’s target of USD 400 bn and well above USD 291.6 bn in FY21. India’s trade deficit narrowed to USD 18.5 bn in Mar’22 from USD 20.9 bn in Feb’22.
CPI inflation rose to 13-month high to 7 per cent in Mar’22 from 6.1 per cent in Feb’22 surpassing RBI mandate for the second straight month. Food inflation quickened to 16-month high of 7.7 per cent in Mar’22 from 5.9 per cent in Feb’22. Core inflation also rose by 40bps to 6.3 per cent in Mar’22. RBI expects inflation average 5.7 per cent in FY23.
RBI in a recent report has highlighted three industries-electricity, chemicals and automobiles, as being the most vulnerable sectors in terms of fossil fuel intensity.
As a corollary banks need to keep this in mind when lending. This study looks at the energyintensity of various industries and also juxtaposes the same with the banking system’s exposure to them.
BOB study looked at the share of power and fuel to total expenditure to analyse energy intensity of industries. Admittedly the energy component includes all sources and not just fossil fuels.
The study shows that the energy intensity for the aggregate sample has remained by and large stable in the range of 9.4 per cent to 10.2 per cent in the last 6 years ending 2020-21.
There has been a marginal decline in 2020-21 which can be attributed more to the decline in overall production. The leading sectors in terms of energy intensity are communications, glass and glassware, paper and paper products, metals and products and transport besides electricity which inherently is fuel intensive.