new Omicron Covid strain may weigh on growth perspective

Workers unload bags of rice on Monday jun. 21, 2021. D

Dheeraj Singh | Bloomberg | Getty Images

India’s economy expanded in line with market expectations for the quarter ending in September, but economists say risks such as the new Covid variant ommicron could weigh on future growth.

Gross domestic product grew 8.4% from July to September – India’s fiscal second quarter – compared to a year ago, according to data released on Tuesday by the Indian Ministry of Statistics. It was in line with the growth expectations of economists polled by Reuters.

In the same period last year, the Indian economy shrank by 7.4% due to a months-long national lockdown due to the coronavirus pandemic.

While the data is likely to be a “clear positive” for the Reserve Bank of India when its monetary policy committee meets next week, the recovery was not broadly based and growth was disappointing in key areas such as non-financial sectors, non-public services and manufacturing, according to ANZ Research analysts.

Omicron variant

Economists have highlighted the new Covid variant omicron, first identified by South African scientists, as a potential source of uncertainty for the future of India’s economy.

There is a risk of a potential increase in restrictions in the first half of 2022, to contain the spread of the new omicron variant, Goldman Sachs analysts said in a note Tuesday.

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The omicron strain has already been discovered in several countries from Australia and Hong Kong to the United Kingdom and the Netherlands. The rise rattled markets and forced countries to rethink their reopening plans. Health experts are concerned about the transmission of the variant, given the unusual number of mutations and the profile that differs from previous variants.

India is considering all its plans to reopen its borders to large-scale international travelers. On Sunday, the South Asian country introduced mandatory Covid tests at airports and a 7-day home quarantine for all travelers coming from countries considered high risk, including those who are fully vaccinated against the disease. The omicron variant has not yet been discovered in India.

The uncertainties surrounding the omicron strain could require India to achieve a much higher vaccination rate before there is a sustainable recovery in household spending, said Priyanka Kishore, head of India and Southeast Asia economy at Oxford Economics, in a note.

“We continue to predict a sequential slowdown in growth [in the current quarter] in the midst of suppressed consumer sentiment, “she said.

“We are looking for a more sustainable recovery from [April-June quarter] further, by when 80% of the population is probably fully vaccinated. However, it is assumed that the Omicron variant does not significantly affect the effectiveness of vaccines, “added Kishore.

Reserve Bank of India

India’s central bank is expected to halt interest rates as the country faces a long road to economic recovery, Jahangir Aziz, chief economist for emerging markets at JPMorgan, said on Wednesday.

“There is very little chance that given the amount of slack in the economy, given the incompleteness of the recovery, the RBI will want to see much more evidence that the recovery is well grounded and rooted before it comes to policy,” he said. he on CNBC’s “Squawk Box Asia.”

“It will probably feed a bit of liquidity here and there, but I do not think it will affect the rates,” Aziz said.

Government data showed that spending on private consumption for the quarter of September improved compared to a year ago, but it is still slightly below 2019 levels for the same period.

ANZ analysts said that some of the positive factors leading to a growth of 8.4% are likely to decrease, and that would require the central bank to remain accommodating on policies to restore growth sustainably.

They pointed out that private consumption performed better than expected in the September quarter, probably helped by the festive demand, which will decrease in the coming months. India’s exports could also soften in line with a moderation in external demand conditions, she added.

They also pointed out that “Government support for growth may not remain so strong [the second half of fiscal year 2022],

This is because India’s fiscal deficit target of 6.8% of GDP may limit the room for government spending, as tax revenues are expected to be lower due to tax cuts on fuel and could disappoint investment receipts, ANZ analysts said.


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