Covid 3.0 to shave off 40bps in Q4 GDP growth

However, there continues to be a lot of uncertainty around this. Therefore, the impact of the third wave on GDP growth will depend on the extent to which restrictions need to be extended across states in the coming weeks, says Aditi Nayar, chief economist at Icra

Omicron Outrage

- Icra's forecasts 9% growth for FY22

- It's lowest among other estimates of 8.5-10%

- RBI pegs GDP growth at 9.5%

- Surge in Covid-19 cases leading to heightened uncertainty

Mumbai: The third wave of the pandemic, which has seen a massive spike in infections after the more infectious Omicron variant of the coronavirus appeared, is likely to shave 40 bps off the fourth quarter GDP growth that may print in at 4.5-5 per cent, warns Icra Ratings.

Admitting that it is too early to take a firm view as the third wave has just about started, the agency's chief economist Aditi Nayar said given the early indications and the speed with which new infections are being reported, it can be surmised that there could be more mobility restrictions that will impact economic activities, especially in contact-intensive sectors. Accordingly, Icra sees the third wave shaving around 40 bps off the March quarter GDP growth, which may print in at 4.5-5 per cent going by the early assessment, Nayar told PTI. However, she has retained the "full year GDP forecast at 9 per cent, with moderate downside risks", saying anyways Icra's forecast was the lowest among the consensus numbers which vary from 8.5 to 10 per cent, with the RBI pegging it at 9.5 per cent.

It is too early to revise the full year GDP growth down given the lack of data on the likely impact of the third wave. Besides, the government spending data for December is not out yet, she added. Considering that the Centre has sought a massive Rs 3.73 lakh crore in additional spending for the year as the second supplementary grants early last month, it is very likely that government spending would have already spiked last month and may continue to rise through the remainder of the fiscal, she argued, adding that higher public spending may well offset the impact of the third wave.

The agency has also retained Q3 growth forecast at 6-6.5 per cent, saying many high-frequency indicators have flattened in November, with slack emerging after the festive season and supply disruptions caused by heavy rainfall in the south.

"Our early analysis suggests that the impact of the Omicron wave may be limited to one quarter (Q4) in terms of the duration of the surge in fresh cases, as well as the economic impact given the better preparedness of governments, healthcare system and households. However, there continues to be a lot of uncertainty around this. Therefore, the impact of the third wave on GDP growth will depend on the extent to which restrictions need to be extended across states in the coming weeks. As of now, we see a modest downside to our FY22 GDP forecast of 9 per cent," Nayar said. She also said given the recent surge in Covid-19 cases and widening of restrictions leading to heightened uncertainty, it is increasingly unlikely that the RBI will commence the much-delayed policy normalisation next month itself, unless inflation provides an acutely negative surprise.