Omicron makes analysts lower growth forecast: Studies suggest the third wave should peak by month-end

Indian Ratings and Research has revised downward its projection to 9.3 per cent from 9.4 per cent

Studies suggest the third wave should peak by month-end, limiting the economic impact to Q1 2022.: File Picture

TT  Special Correspondent   |   New Delhi   |  11.01.22  : The rapid spread of the Omicron virus has forced many analysts to lower their growth forecast for the year.

Citigroup Inc, India Ratings & Research and ICICI Bank have lowered their gross domestic product estimates after official NSO data showed the Indian economy will likely expand 9.2 per cent in the current fiscal year — slower than the forecasts of RBI and the IMF of 9.5 per cent growth for the year.

While Citi has reduced its forecast to 9 per cent from 9.8 per cent, ICICI Bank lowered it to 9.6 per cent from 9.8 per cent.

Indian Ratings and Research has revised downward its projection to 9.3 per cent from 9.4 per cent and Japanese firm Nomura to 8.7 per cent from 9.2 per cent.

Citi economists Samiran Chakraborty and Baqar M Zaidi wrote in a research report economic activity in the last three months was weak when Omicron made its entry, though its impact could be less than the previous waves. Citi has also lowered its growth forecast for the next fiscal to 8.3 per cent from 8.7 per cent.

“There are reasons to be hopeful of a less-disruptive Covid wave. These include lower hospitalisation rates, shorter Covid wave cycle period, higher vaccination coverage and weakening link between Covid and activity,” Chakraborty and Zaidi wrote.

Analysts at BofA Securities Inc. and Deutsche Bank AG have retained their projections for now, while flagging downside risks to growth.

“Some negative impact on activity is probable, but the rebound can also be relatively quick,” Aastha

Gudwani of BofA wrote in a report. Downside risks are growing, but it’s too early to quantify, BofA  said.

Care Edge in its report said “even as we retain our GDP growth forecast for the current financial year at 9.1 per cent, in the likelihood of a sharp surge in infections and associated restriction, there could be downward revision in our outlook by around 10 bps”.

India Ratings and Research said the surge in cases seen over the last fortnight would have an adverse impact on the fourth-quarter GDP and the growth will come at 5.7 per cent during the quarter, which is 0.40 per cent lower than the earlier estimate of 6.1 per cent.

“For the entire FY22, the GDP is expected to clock a growth rate of 9.3 per cent, 0.10 percent lower than what was estimated earlier,” the India Ratings & Research report said.

The adverse growth impact of the third wave should be more muted than previous waves, but services will still take a larger hit, Nomura said. Studies suggest the third wave should peak by month-end, limiting the economic impact to Q1 2022, it added.