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The third wave is expected to slow economic growth in the short term

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The third wave is expected to slow economic growth in the short term

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

Bloomberg | Bloomberg | Getty Images

India is experiencing a third wave of Covid infections – while its overall impact is expected to be less disruptive than previous waves, some economists are predicting slower growth in the near term.

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

But they pointed out that the dynamics of India’s economic activity between October and December were below expectations, even before the third wave hit.

This has led Citi economists to downgrade their estimates of inflation-adjusted GDP for India for fiscal year 2022. Growth is expected to fall 80 basis points to 9.8% year-on-year at 9% largely due to weaker economic activity in October. -December quarter, said Chakraborty and Zaidi.

As a result, they also downgraded their growth estimates for fiscal 2023 from 8.7% year-on-year to 8.3%.

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

Omicron in India

Covid cases are on the rise again in India, with daily figures surpassing 150,000 in recent days.

Government data showed India reported 247,417 new infections in a 24-hour period on Thursday, with a daily positivity rate – which measures the share of Covid-19 tests that are positive – at 13.11%.

There are more than 1.1 million active cases of infection in the country, according to the data.

So far India has identified 5,488 cases of Covid infections which have been caused by the highly contagious new omicron variant which was first detected by South African scientists. The number of omicron cases in India is likely to be much higher than has been officially reported as it takes time for genetic sequencing to determine whether someone with Covid has contracted the new strain.

The predominant strain in India is still the delta.

While India’s healthcare infrastructure is relatively better prepared to deal with the third wave, a rapid increase in the number of cases could potentially push it back to the brink.

“Regional variations in access to healthcare personnel, medical facilities, oxygen ventilators and intensive care highlight the need for proactive action before the number of cases escalates beyond the subways,” Radhika Rao, senior economist at Singapore’s DBS Group, said in a Jan.6 note.

We expect much less economic damage from the current outbreak compared to the first two waves of infections, as the economy has adjusted to be more resilient …

Priyanka Kishore

Oxford economy

The impact of the third wave could potentially worsen in the weeks and months to come. Thousands of pilgrims are expected to gather this week on the River Ganges in the eastern state of West Bengal for an annual festival, local media reported.

Last year, a similar large-scale religious rally was partly responsible for the devastating second wave of infections between February and May.

Economic impact

While the sharp increase in cases has led economists to become more cautious about the outlook for the January-March quarter, they also expect a less severe impact than before.

“We expect much less economic damage from the current outbreak compared to the first two waves of infections, as the economy has adjusted to be more resilient to Covid-related disruptions,” wrote Priyanka Kishore, manager Economics for India and South East Asia at Oxford Economics. in a note of January 8.

Still, she said Oxford Economics lowered its growth forecast for the January-March quarter by nearly 0.5 percentage point to 2.5% quarter-on-quarter to “reflect the third wave of Covid infections” .

The latest increase is expected to lead to a further decline in India’s private consumption as states tighten restrictions to limit the spread of the virus.

She added that the next quarter from April to June should be the start of a “more sustainable recovery” because by then a large percentage of the population is expected to be fully immunized.

Citi economists said there was reason to hope for a less disruptive wave of Covid. They include: lower hospitalization rates – like what is currently seen in cities like Mumbai – a shorter Covid wave cycle, higher vaccine coverage and a weakened link between Covid and economic activity.

“Higher immunization coverage will help policymakers avoid strict restrictions,” they wrote.

India has fully vaccinated nearly 70% of its adult population and this year launched a vaccination campaign for 15-18 year olds.

Inflationary pressure in India

According to Kishore of Oxford Economics, the Reserve Bank of India is unlikely to consider raising interest rates before the second quarter as the central bank seeks to prioritize growth risks over peaks in short-term inflation.

Rising prices are cause for concern as retail price inflation in India hit a 5-month high in December.

Rao of the DBS Group said the RBI last month indicated its preference for “a gradual path to policy normalization” and was moving away from global policy changes – particularly from the US Federal Reserve.

People crowd without meeting social distancing standards amid the Covid-19 pandemic at Juhu Beach on January 2, 2022 in Mumbai, India.

Pratik Chorge | Time of Hindustan | Getty Images

Supply disruptions could potentially keep inflation in the upper end of the RBI’s 2-6% target range in FY2023, according to Rao.

“Persistent inflation and global rate adjustments keep us on our call for a 50 basis point cumulative repo rate adjustment in 2H,” she said.

The third wave is expected to slow economic growth in the short term

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