Goldman Sachs lowers India’s growth forecast as Covid cases rise

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NOIDA, INDIA – APRIL 11: A woman holds a pot during a food distribution by the Noida authority in the village of Morna in Sector 35, on the eighteenth day of the 21-day lockdown to limit the coronavirus, on the 11th April 2020 in Noida, India. (Photo by Virendra Singh Gosain / The Bharat Express News via Getty Images)

The Bharat Express News | The Bharat Express News | Getty Images

A second wave of Covid-19 infections is expected to slow India’s economic recovery in the three months from April to June, according to Goldman Sachs.

The investment bank lowered India’s growth forecast for the quarter on Tuesday from 33.4% year-on-year to 31.3%. He cited a decline in consumption and service activity, possibly due to increased social restrictions put in place by India’s state and federal governments to tackle the new epidemic.

Goldman said he expects gross domestic product (GDP) to sequentially contract 12.2% quarter on year on an annualized basis for the three months ending in June – marking the first quarter of the Indian fiscal year which began on April 1 and ends on March. 31, 2022. Last year India entered a technical recession after recording two consecutive quarters of contraction.

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“With cases of the virus hitting a new high of over 100,000 / day over the weekend, and a host of states, including Maharashtra, announcing tighter lockdown restrictions set to widen in the weeks ahead, we expect second quarter GDP growth to be slower than we originally expected, ”Goldman analysts wrote.

Record high cases

Cases in India have been on the rise since mid-February, with Maharashtra state – home to India’s financial capital Mumbai – particularly hard hit. India reported more than 103,000 new cases in a 24-hour period on Monday, surpassing levels seen in September when the first wave of infection peaked.

The South Asian nation reported 96,982 new cases on Tuesday, with a large portion in eight states, including Maharashtra, Chhattisgarh and Karnataka.

Authorities in Maharashtra have stepped up restrictions, including introducing nighttime curfews when only essential services will remain open, as concerns grow over a potential shortage of hospital beds and doctors. Other states are also preemptively increasing restrictions to slow the spread of the virus.

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On the other hand, India has also stepped up its vaccination efforts. Government data on Tuesday shows the country has administered more than 84 million doses since rolling out its mass inoculation program in January.

Some analysts and investors have said the impact of the recent spike in cases is likely to be limited if India can avoid a strict national lockdown like that of last year.

Strong rebound in the following quarters

Goldman expects activity to rebound strongly from the following quarters – July-September and beyond – as India’s containment policy normalizes and the pace of vaccination accelerates. Still, the April-June quarterly blow is likely to affect India’s overall growth projection for the fiscal year, which Goldman now expects to be 11.7%, down from a forecast. earlier by 12.3%.

That said, the investment bank has warned that uncertainties around its estimates remain high and the actual impact could be larger or smaller, depending on the severity of India’s containment policies and whether they spill over into sectors such as construction and manufacturing.

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The impact on GDP can potentially be cushioned by more targeted and localized restrictions in hot spots, as opposed to a large-scale national lockdown, like the one India undertook last year, which has had an impact. socio-economically significant, according to Goldman.

“The measures have also been more targeted and geared towards service sectors such as leisure, recreation and transport, with little or no impact on agriculture, manufacturing, construction and utilities,” said Analysts said, adding that the bank’s analysis suggested people are getting used to a post-Covid environment, with a shift towards e-commerce and working from home. As such, their response to state containment policies will likely be less sensitive.

Goldman also expects the Reserve Bank of India to keep its key rate at 4% and maintain its accommodative stance and environment with abundant liquidity for longer than expected.

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