NEW DELHI/MUMBAI: The surge in Covid-19 cases in several states across the country has stoked worries about the economic recovery under way, Investment banks are scaling down their growth projections, while others are voicing concerns over the second wave and its impact on recovery.
The second wave sweeping the country has come at a time when the economy was emerging from the bruising impact of the lockdown imposed last year to prevent spread of the disease.
A Goldman Sachs Portfolio Strategy research report said its economists have revised down their overall calendar year real GDP growth forecast to 10.5% from 10.9% previously but it remains above the consensus forecast of 9.4%.
“Our economists believe that the containment restrictions are likely to be more targeted with hits to specific services (such as food and beverages, leisure and recreation, transport) with limited spillovers into other sectors such as construction and manufacturing,” the Goldman Sachs report said. It added that activity is likely to rebound sharply from the third quarter onwards as containment policies normalise.
On Monday, Japanese investment bank and brokerage Nomura said it was lowering the growth forecast for India to 11.5% from 12.4% in 2021.
A day later, global ratings agency Moody’s Investors Service also cautioned about the impact of the sharp increase in infections on the recovery.
“The second wave of infections presents a risk to our growth forecast as the re-imposition of virus management measures will curb economic activity and could dampen market and consumer sentiment. Retail and recreation activity across India had dropped by 25% as of April 7 compared with February 24, according to Google mobility data. This was mirrored in the Reserve Bank of India’s March consumer confidence survey, which showed a deterioration in perceptions of the economic situation and expectations of decreased spending on non-essential items,” the agency said in a report.
But, the overwhelming view was the impact would be less severe than seen in 2020, given the focus on “micro-containment zones” to deal with the current wave of infections, as opposed to a nationwide lockdown. Yet, the lockdowns, even if localised and partial, will impact the economy as supply chains and production will be impacted, said industry players.
Global financial major Barclays said current restrictions on mobility of people in economic hubs like Maharashtra, Gujarat, Tamil Nadu and Rajasthan may cause a weekly loss of $1.3 billion to GDP.
If the current restrictions remain till May-end, the total cost could add up to about $10.5 billion. Barclays maintained its FY22 GDP growth forecast at 11% but warned “if the curbs are tightened further, then we see modest downside risks”.
The fresh surge in cases also comes against the backdrop of sluggish economic data with industrial production contracting for the second consecutive month in February and inflation soaring to a four-month high in March.