The third wave is expected to slow short-term economic growth

The third wave is expected to slow short-term economic growth

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.

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  • 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 momentum for India’s economic activity between October and December fell below expectations, even before the third wave hit.

Consequently, they also revised down their fiscal 2023 growth estimates from 8.7% year-on-year to 8.3%.

That led the Citi economists to revise down their inflation-adjusted GDP estimates for India for fiscal year 2022. Growth is predicted to fall by 80 basis points from 9.8% year-on-year to 9% largely due to weaker economic activity in the October-December quarter, Chakraborty and Zaidi said.

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

Omicron in India

Covid cases are surging in India again, with daily figures exceeding 150,000 in recent days. Government data showed India reported 247,417 new infections over a 24-hour period on Thursday, with the 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 that were caused by the new, highly contagious omicron variant that was first detected by South African scientists. It is likely that the number of omicron cases in India is much higher than what has officially been reported so far as it takes time for genetic sequencing to determine if a person with Covid contracted the new strain.

The predominant strain in India is still delta. While India’s health-care infrastructure is relatively better prepared to tackle the third wave, a rapid uptick in cases could potentially push it to the brink again.

Priyanka Kishore Oxford Economics

We expect far less economic damage from the current outbreak compared to the first two waves of infections as the economy has adjusted to be more resilient… “Regional variations in access to healthcare personnel, medical facilities, oxygen ventilators and critical care underscore the need for proactive action before caseloads intensify beyond the metros,” Radhika Rao, a senior economist at Singapore’s DBS Group, said in a Jan. 6 note.

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