NOIDA, INDIA – APRIL 11: A woman holds a pot at a food distribution by Noida Authority in Morna Village, Sector 35, on the eighteenth day of the 21-day closure to limit coronavirus, on 11 April 2020 to Noida, India. (Photo by Virendra Singh Gosain / Hindustan Times via Getty Images)
Hindustan Times | Hindustan Times | Getty Images
According to Goldman Sachs, a second wave of Covid-19 infections is expected to slow India’s economic recovery in the three months from April to June.
The investment bank on Tuesday cut India’s growth forecast for the quarter from 33.4% year-on-year to 31.3%. He cited lower consumption and service activity probably due to the increasing social restrictions that are being put in place by the state and federal governments of India to deal with the new outbreak.
Goldman said it expects gross domestic product (GDP) to contract sequentially 12.2% quarter-on-quarter on an annualized basis during the three months ending June, marking the first quarter of India’s fiscal year which began April 1 and ends March 31, 2022. Last year, India fell into a technical recession after recording two consecutive quarters of contraction.
“With virus cases reaching a maximum of more than 100,000 kilometers a day over the weekend, and a number of states, including Maharashtra, announcing stricter blocking restrictions that are likely to be expanded in the coming weeks, we expect Q2 GDP growth to be slower than we initially anticipated, ”Goldman analysts wrote.
Registration of high cases
Cases in India have been on the rise since mid-February, with the state of Maharashtra, home to India’s financial capital, Bombay, being hit hard. On Monday, India reported more than 103,000 new cases in a 24-hour period, which surpassed the levels seen in September, when the first wave of infection peaked.
On Tuesday, the South Asian nation reported 96,982 new cases, with a large share in eight states, including Maharashtra, Chhattisgarh and Karnataka.
Maharashtra authorities have stepped up restrictions, including the introduction of night curfews when only essential services will remain open, as concerns rise over the potential shortage of hospital and medical beds. Other states also preventively increase restrictions to curb the spread of the virus.
On the other hand, India has also intensified its vaccination efforts. As of Tuesday, government data indicate that the country has administered more than 84 million doses since it launched its mass inoculation program in January.
Some analysts and investors have said the impact of the recent rise in cases will likely be limited if India can avoid a tight national blockade like last year.
Strong rebound in later quarters
Goldman expects activity to pick up sharply in subsequent quarters (July-September and beyond) as India’s containment policy normalizes and the pace of vaccination accelerates. However, the success of the April-June quarter is likely to affect India’s overall growth projection for the fiscal year, which Goldman now expects at 11.7%, below a previous forecast of 12.3%.
That said, the investment bank warned that uncertainties about its estimates remain high and that the actual impact could be greater or lesser, depending on the severity of India’s containment policies and whether they cover sectors such as construction and manufacturing.
The impact on GDP can be dampened by more specific and localized restrictions on hot spots rather than a broad-based national blockade, such as the one undertaken by India last year, which had a major socio-economic impact, according to Goldman.
“Measures have also been more oriented and biased towards service sectors such as leisure, recreation and transport, with little or no impact on agriculture, manufacturing, construction and utilities,” the analysts, who added that the bank’s analysis suggested that people get used to a post-Covid environment, with a shift towards e-commerce and work from home. As such, their response to containment policies by states is likely to be less sensitive.
Goldman also expects the Reserve Bank of India to keep its political rate on hold at 4%, as well as maintain its accommodative position and an environment with abundant liquidity for longer than expected.