India’s economic outlook has weakened again, albeit slightly, with worst-case scenario forecasts suggesting the toll from the COVID-19 pandemic could be much deeper, stoking fears the job crisis may worsen over the coming year, a Reuters poll found.
Renewed restrictions to curb the current wave have stalled economic activity, leaving many millions out of work and pushing economists — who have broadly been bullish — to downgrade their views for the second time since early April.
The May 20-27 poll showed the outlook for the current quarter was lowered to 21.6% annually, and to 9.8% on average for this fiscal year, down from 23% and 10.4% respectively a month ago. The economy was then forecast to grow 6.7% next fiscal year, compared to 6.5% predicted previously.
While the consensus pointed to healthy growth figures later this year, all 29 economists, in response to an additional question, warned the outlook was either “weak and prone to further downgrades” or “fragile, with a limited downside”.
“Recovery in India was strong in the months before the second wave,” said Wouter van Eijkelenburg, an economist at Rabobank. “This leads us to believe the recovery can rebound quickly after the number of new infections have come down. But vaccination implementation needs to pick up pace in order to have an effect.
‘Sword of Damocles’
“Therefore new surges of the virus hang above recovery like the sword of Damocles. Until a large share of the population is vaccinated there remains this downside risk of new waves and subsequent lockdowns hampering the recovery,” he added.
Underscoring concerns that a slow vaccine rollout may make a bigger dent in the economy, the consensus showed in a worst-case scenario the economy would average just 6.8% growth this fiscal year after its deepest ever recession last year.
“Let’s hope (the situation) doesn’t go there,” said Gareth Leather, seniorAsia economist at Capital Economics. “If it does and we do have another wave ... after this one, maybe the government will learn some lessons — that it is better to lock down the economy sooner, rather than later. The threat of further waves will hang over the economic outlook so long as India’s vaccination progress remains lacklustre,” he added.
“There is going to be a significant demand shock to the economy, some of that could be permanent demand destruction, thereby pushing more out of the jobs market and keeping the unemployment rate elevated over the coming year,” said Prakash Sakpal, senior Asia economist at ING.
