Advertisement

Second wave of COVID-19 poses risk to economic recovery; Q4 GDP to be hit: Report

03:21 PM Apr 16, 2021 | Team Udayavani |

Mumbai: The spike in coronavirus cases poses a risk to economic recovery, and the GDP is unlikely to achieve the earlier projected 3 per cent growth for March quarter 2020-21, Wall Street brokerage Bank of America (BofA) Securities said on Friday.

Advertisement

Noting that a month-long nationwide lockdown can shave off 100-200 basis points off the GDP, the brokerage said growth is still weak, amplified by the steep fall in key economic activity indicators and the anaemic loan growth, and the surging pandemic cases is only increasing the worries on the growth front.

However, the report by BofA Securities did not offer a likely GDP number for the March quarter 2020-21.

The seven-component BofA India activity indicator slowed to 1 per cent in February from 1.3 per cent in January, the report said, as 4 of the 7 constituents of the India activity index slowed in February over the previous month.

The report also pointed out that this poses risks to their 3 per cent real GVA growth forecast for the March quarter. The index had first time in 2020-21 turned positive in December 2020 after declining for nine straight months.

Advertisement

Spike in pandemic cases poses a rising risk to recovery. “We estimate that a month of national lockdown costs 100-200 bps of GDP,” the report warned.

The pandemic caseload in India has been surging hitting new records everyday for the past fortnight. The latest official number puts the daily infections at 2.17 lakh in the past 24 hours and 1,185 deaths– both are the highest in the world and more than the combined numbers of the second and the third most affected countries– Brazil and the US.

The report said it remains to be seen if the second wave subsides without a national lockdown and noted that Maharashtra, which contributes over 16 per cent of national GDP is already under lockdown till the end of the month as the state has more than half of the new cases.

A bit of good news is that real lending rates are falling thanks to the steady RBI easing and normalization of core WPI and these factors should push 2021-22 loan growth to 12 per cent from 5.6 per cent in the last fiscal year. Real interest rates are a proxy for pricing power.

Falling real lending rates will push up loan growth. Despite some spike in inflation, the nominal marginal cost of funds based lending rate (MCLR) is now down 145 basis points since March 2019 and the real MCLR is lower by 506 basis points since then. And so are the nominal and real weighted average lending rates.

In sum, “an anemic loan growth only buttresses our view of a weak recovery,” the report concluded.

Advertisement

Udayavani is now on Telegram. Click here to join our channel and stay updated with the latest news.

Next