The third wave of the pandemic, which has seen a massive spike in infections after the more infectious Omicron variant of the coronavirus appeared, is probably going to shave 40 bps off the fourth-quarter GDP growth that may print in at 4.5-5 percent, warns ICRA Ratings.
Admitting that it is too early to take a firm view as the third wave has pretty much started, the agency’s chief economist Aditi Nayar said given the early indications and the speed with which new infections are being reported, it tends to be derived that there could be greater mobility restrictions that will impact economic activities, especially in contact-intensive sectors.
Consequently, ICRA sees the third wave reducing around 40 bps off the March quarter GDP growth, which may print in at 4.5-5 percent bearing the early estimation, Nayar told PTI.
However, she has maintained the “full-year GDP forecast at 9 percent, with moderate downside risks”, saying anyways ICRA’s prediction was the lowest among the concurrence numbers which vary from 8.5 to 10 percent, with the RBI pegging it at 9.5 percent.
It is too early to update the full-year GDP growth down given the lack of data on the possible impact of the third wave.
Besides, the public authority spending data for December isn’t as yet out, she added.
Considering that the Center has looked for a massive Rs 3.73 lakh crore in additional spending for the year as the second supplementary grants early last month, almost certainly, government spending would have already spiked last month and may continue to ascend through the remainder of the fiscal, she argued, adding that higher public spending may well offset the impact of the third wave.
The agency has also maintained a Q3 growth prognosis at 6-6.5 percent, saying many high-frequency indicators have flattened in November, with slack emerging after the joyful season and collection disruptions caused by heavy rainfall in the south.
“Our early analysis suggests that the impact of the Omicron wave may be limited to one quarter (Q4) in terms of the duration of the surge in fresh cases, as well as the economic impact given the better preparedness of governments, healthcare system, and households.”
“However, there continues to be a lot of uncertainty around this. Therefore, the impact of the third wave on GDP growth will depend on the extent to which restrictions need to be extended across states in the coming weeks. As of now, we see a modest downside to our FY22 GDP forecast of 9 percent,” Nayar said.
She also said given the recent surge in COVID-19 cases and the widening of restrictions leading to uplifted uncertainty, it is increasingly impossible that the RBI will start the much-delayed arrangement normalization one month from now itself, except if inflation gives an acutely negative shock.