Third wave expected to slow near-term economic growth

Covid lab technicians in India on Friday, January 7, 2022.

Bloomberg | Bloomberg | Getty Images

India is experiencing a third wave of Covid-19 infections – and while the overall impact is expected to be smaller than the previous wave, some economists are predicting slower growth in the short term.

Citi economists Samiran Chakraborty and Baqar M Zaidi wrote in a Jan. 9 report that the economic impact of the new wave is The first three months of 2022 may be relatively less severe.

But they noted that economic activity in India between October and December had weaker-than-expected momentum, even before the third wave hit.

This led Citi economists to cut their inflation-adjusted GDP forecasts for India’s fiscal 2022. Growth is expected to decline 80 basis points year-on-year to 9% from 9.8%, mainly due to weak economic activity in the October-December quarter, Chakraborty and Zaidi said.

As a result, they also lowered their growth forecast for fiscal 2023 to 8.3% y/y from 8.7% y/y.

India’s fiscal 2022 ends in March and its fiscal 2023 starts on April 1 and ends on March 31 next year.

Omicron in India

Covid-19 cases have surged again in India, with daily cases surpassing 150,000 in recent days.

government data show India reported 247,417 new infections in a 24-hour period on Thursday, with a daily positivity rate (a measure of the proportion of people who test positive for Covid-19) of 13.11%.

The data shows that the country has more than 1.1 million active infections.

India has so far identified 5,488 cases of Covid infection caused by a new highly contagious variant of the omicron first identified by scientists in South Africa. The number of omicron cases in India so far may be much higher than officially reported, as genetic sequencing takes time to determine whether Covid patients have been infected with the new strain.

In the leading Pressure on India remains delta.

While India’s medical infrastructure is relatively well-prepared for a third wave, a rapid rise in cases could push it over the edge again.

“Regional disparities in access to healthcare workers, medical facilities, oxygen ventilators and intensive care are highlighted,” Radhika Rao, senior economist at DBS Group in Singapore, said in a January 6 report. The need for aggressive action before the number of cases intensifies outside metropolitan areas.”

We expect the economic damage from the current outbreak will be much smaller than the previous two waves of infections as the economy has adjusted to be more resilient…

Priyanka Kishore

Oxford Economics

The impact of the third wave is likely to worsen in the coming weeks and months. Thousands of pilgrims are expected to gather on the Ganges in the eastern state of West Bengal this week for the annual festival, Local media reported that.

A similar large religious gathering last year was partly responsible for a devastating second wave of infections between February and May.

Economic impact

While the sharp rise in cases has led economists to become more cautious about their outlook for the January-March quarter, they also expect the impact to be smaller than before.

Priyanka Kishore, head of India and Southeast Asia economics at Oxford Economics, wrote: “Compared to the previous two waves of infections, we expect the current outbreak to be much less damaging to the economy, which has already Adjusted to be more resilient to coronavirus-related disruption.” in a Jan. 8 note.

However, she said Oxford Economics had cut its growth forecast for the January-March quarter by almost 0.5 percentage points from the previous quarter to 2.5% to “reflect a third wave of coronavirus infections”.

The recent surge is expected to lead to another slide in private consumption in India as states tighten restrictions to limit the spread of the virus.

She added that the subsequent April-June quarter will be the start of a more “durable recovery”, as a large percentage of the population is expected to be fully vaccinated by then.

Economists at Citi said there was reason to be hopeful for a less disruptive Covid-19 outbreak.They include: Lower hospitalization rates – for example What is currently seen in cities like Mumbai — Shorter Covid-19 wave cycles, higher vaccination coverage, and a weakened link between Covid-19 and economic activity.

“Higher vaccination coverage will support policymakers to avoid severe restrictions,” they wrote.

India is fully vaccinated nearly 70% of the adult population And this year it launched a vaccination campaign for 15- to 18-year-olds.

Inflationary pressures in India

People fail to observe social distancing norms amid the Covid-19 pandemic at Zhuhu Beach in Mumbai, India, January 2, 2022.

Pratik Jorg | Hindustan Times | Getty Images

Supply disruptions are likely to keep inflation at the upper end of the RBI’s 2% to 6% target range for fiscal 2023, Rao said.

“Stick inflation and global rate adjustments have prompted our continued call for a cumulative 50 basis point repo rate adjustment in 2H,” she said.