India cover news update from Third wave

The third wave of Covid-19 infections will likely have a far smaller economic impact than the previous two surges in infections, according to Nomura economists. Nomura expects the January-March quarter to see sequential growth of 1%, on a quarter-on-quarter seasonally adjusted basis, according to a Jan. 14 note. This compares to 3% sequential growth in the previous quarter.

 

As such, the economic hit from this wave of infections is seen to be much smaller than during the second wave when the economy contracted 8% on a quarter-on-quarter, seasonally adjusted basis. “Accordingly, we lowered our January-March GDP growth forecast to 3.2% year-on-year from 5.2%,” wrote economists Sonal Varma and Aurodeep Nandi in the report. Nomura expects the third wave to peak by early February and daily caseloads to fall sharply thereafter. Thus, state-wide restrictions may remain in place for about a month. “We expect higher caseloads, but assume a shorter duration of about one month from the trough to the peak for the third wave, which should mean economic damage is contained within the January-March quarter and limited to delaying a recovery in contact-intensive services,” Nomura said. For the full year, Nomura estimates GDP growth at 8.7% in FY22 and 7.8% in FY23. This is lower than official advance estimates, released ahead of the union budget, that peg GDP growth at 9.2%. Along with lower GDP growth, Nomura also expects a rise in inflation on account of the third wave. Still, uncertainty over growth may delay monetary policy normalisation. Headline inflation is estimated to rise to 6-6.5% in January from 5.6% in December, while core inflation is estimated to rise to about 6.5% in January from 6% in December, according to estimates by Nomura. “We expect the third wave to be mildly inflationary due to labour or logistics disruptions, with January-February bearing the brunt of the impact, Nomura said. A number of economists have cut their growth forecasts for FY22 as infections have surged again. Most, though, estimate the economic impact to be marginal. QuantEco Research retained its GDP forecast for the full year at 9.6%, despite the spread of Omicron, saying that healthy tax collections could provide extra leg room for GDP growth. “Policy promptness with respect to the onset of stringency measures, ramping up of health infrastructure, progress on vaccinations and booster shots and economic agents learning to live with the virus could limit economic spill overs,” it said in a Jan. 7 research note. Pranjul Bhandari, chief India economist at HSBC, said FY22 GDP growth could be 0.25 percentage points lower, while upside risks to inflation may not abate. “With firms and consumers adapting to the new normal, we previously found that the economic cost of each pandemic wave is a third of the previous wave,” wrote Bhandari. GDP could grow possibly 2 percentage points less in the March quarter than previously anticipated, she added.

Leave a Reply

Your email address will not be published. Required fields are marked *