Omicron spread to reduce GDP growth by 10bp in FY22: Ind-Ra
Concern over covid-19 and its impact on the ongoing economic recovery has resurfaced again in light of the spread of omicron. Restrictions in various forms, such as reduced capacity of markets / market complexes and night / weekend curfews to control mobility / human contact, began to impact economic activities , which has a negative impact on the GDP of 4QFY22, said India Ratings and Research (Ind-Ra). Thusday.
According to the rating agency’s estimates, GDP growth in 4QFY22 will now stand at 5.7% year-on-year, 40 bps lower than the agency’s previous estimate of 6.1%.
For FY22 as a whole, GDP is expected to grow 9.3% year-on-year, 10bp lower than our previous estimate of 9.4%.
Although cases of omicron spread much faster than previous variants of covid-19, indications so far suggest that the infections are milder and generally not life threatening. It also means that restrictions imposed by local / state governments will be less disruptive than covid 1.0 and 2.0. In addition, the previous two waves have enabled government and businesses to cope better and be more resilient in such situations.
Ind-Ra said that due to this, the impact of covid 3.0 on the economy will be less than that of covid 1.0 and 2.0. Once covid 3.0 calms down, the economy should rebound fairly quickly as it did after 2.0, he added in his analysis of current developments.
The agency said political support – both monetary and fiscal – would be essential until the threat of a pandemic continues and the economy reaches the stage of a sustained growth trajectory.
Despite the ongoing recovery, some high-frequency indicators such as the industrial production index show that industrial production levels are still lower than pre-covid-19 levels (industrial production from October 2021 to 99.6% of pre-covid level). Against this background, an Ind-Ra assessment suggests that the Reserve Bank of India will continue to pursue its accommodative policy with no change in the key rate for the foreseeable future and that the Union government would not be in any hurry to get back on track. fiscal consolidation. It will be a gradual process keeping in mind the current economic scenario, he said.
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