Does The Second Wave of Covid-19 Pose Threat To Economic Growth?

Mar 19, 2021 - 06:04 AMAuthor - Kenneth


Although there has been a noticeable slow down in the new COVID-19 cases reported daily, it cannot be seen as a sign of early relief, experts say. The threat of the second wave of the global pandemic continues and the upcoming few weeks are critical. However, it may not affect the recovery of the Indian economy.

On Wednesday, there were around 28000 new cases of the Covid-positive that were reported, the greatest single-day record in more than a quarter of a year. The demand of the scenario, Maharashtra kept on to lead the surge with certain parts of the area to enable lockdowns for preventing further spread. Kerala, Chhattisgarh, Gujarat, Punjab, Tamil Nadu, and Karnataka excessively reported an increase in the active cases, as per the data from the ministry of health and family welfare.

Since the rise in the new Covid-19 cases being reported in the states outside Maharashtra, India takes it as an increased risk for the second wave of the pandemic, explained in a research note by Nomura dated March 17, 2021. While the increase in these cases represents a near-term risk, medium-term suggestions were limited, as per Nomura research note.

Sonal Varma and Aurodeep Nandi, India Economists, Nomura said, “We accept that the rise in Covid cases can affect near-term development approaches and postpone market assumptions on the circumstance of policy normalization. However, we assume only marginal negative development effects, as the legal limitations are less strict, the merchandise sector keeps on moving gradually along and households and organizations have changed according to the existing situations. ”

Nomura further added that over the medium term, the development of vaccinations, powerful worldwide growth, and decreased effects of easier economic conditions are expected to influence development. However, last year in June 2020, to tackle the COVID-19 global disruption, the International Chamber of Commerce issued guidelines to trade finance markets.

However, if the new cases of Covid-19 keep rising in the upcoming weeks, the legal authorities may be bound to announce a stronger and more limited lockdown, said Kaushik Das, the chief economist at Deutsche Bank. This is likely to have a big impact during the April-June 2021 quarter.

Predicting such a possible increase in Covid-19 cases, Das estimates the growth in the GDP as well could likely be decreased at 25.5% for the quarter, in comparison to 26.2% estimated by the RBI.

Maharashtra Is The Primary State Of Concern

There were over 60% active cases of the virus reported, followed by Kerala with 11% of all active cases.

If new cases keep arising at this rate in Maharashtra, the legal authorities of the state may be forced to announce a lockdown for two weeks, though such drastic step will be taken as the last resort, said Das as the state has its significant contribution of 14.5% to India’s overall GDP which is higher than other affected states, he added.

Nagpur in the Maharashtra state has already undergone a seven-day “complete” lockdown from March 15 along with partial lockdown restrictions going-on for several districts in the state. The service sectors such as hotels, restaurants, cinemas, and multiplexes are allowed to work at only half of their capacity while shopping malls are required to apply strict measures.

Google Mobility information for the retail and recreation sector, accessible until March 12, has moderated to some degree on account of Maharashtra even as it remains relatively constant for other key regions, according to an analysis by Nomura. However, the well-explained data can be seen in the upcoming weeks as states are going through restrictions and individuals are reacting to increasing cases, Nomura said.

Vaccine Pivot

India has so far vaccinated about 2.3% of its population according to Nomura, currently focused on senior citizens and people above the age of 45 with co-morbidities. Keep functioning at this rate, India will vaccinate near to 30% of the population by the end of 2021, estimated by Nomura.

However, three important factors may aid India in accomplishing its vaccine pivot point much sooner, it added.

According to Serological studies, some part of the population has already been exposed. Various new vaccinations have been reported and finally, with the involvement of private hospitals, the speed of vaccinations should also pick up gear.

Thereby, while increasing cases are a risk to near-term operation, this should lead to lesser threat over the coming quarters, Nomura said.


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