Credit Suisse cuts India’s FY22 GDP growth forecast to 8.5-9% due to raging Covid-19 second wave

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May 06, 2021 9:31 PM

The consensus forecast for FY22 growth is between 10% and 11% by most analysts, including international raters like S&P, Fitch and Moody's, and so is their domestic counterparts, with the lowest among them being 9% by Brickwork Ratings.

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Credit Suisse has sharply lowered its real GDP growth forecast for this fiscal year to around 8.5-9 per cent, citing economic disruptions in the country due to the raging second wave that is likely to shave 100-150 bps growth off the economy.

The Swiss brokerage has also warned that it will delay the economy reaching potential growth rate by an additional two-three years beyond 2022-23.

The consensus forecast for FY22 growth is between 10 and 11 per cent by most analysts, including international raters like S&P, Fitch and Moody’s, and so is their domestic counterparts, with the lowest among them being nine per cent by Brickwork Ratings.

Similarly, the consensus potential annual growth rate is 6.5 per cent for many years from 2022-23, which many had predicted after the first wave and the sharper-than-expected recovery the economy had logged in last year.

Analysts were also expecting a rapid turnaround for the economy this fiscal following an at atleast 8 per cent contraction in 2020-21 after being ravaged by the pandemic-induced nationwide lockdown last year.

Given the impact of the raging second wave, Credit Suisse expects a GDP impact of 100-150 basis points, even though considers the second wave is much more intense than the first in terms of daily cases and deaths, yet the economic impact is lower.

The country recorded coronavirus infections of over 4.12 lakh in the last 24 hours.

“We may revise downwards the FY22 real GDP growth forecast by 100-150 bps from our earlier forecast of 7 per cent over 2019-20. Yet, our forecast is meaningfully higher than the consensus forecast, as it was before the second wave.

“We now expect 2021-22 real GDP to be 5 per cent more than 2019-20 (when it stood at a 4 per cent),” Neelkanth Mishra, co-head of equity strategy for Asia Pacific and India equity strategist at Credit Suisse, told PTI in an interaction.

He expects that economic activity restrictions this time should last a few weeks and not months as in the case of last year, and are also less intense than last year, and more localised.

On the long-term impact of the second wave on growth, Mishra feels the economy may not reach the pre-pandemic projected levels for at least two-three years after 2022-23.

A year before the pandemic scuppered every plan, the government had set its eyes on ambitious USD 5-trillion GDP target by FY25, becoming the fourth largest after the US, China and Japan and the third largest by 2029-30.

On growth normalisation, Mishra said it would depend on how soon the infections peak, how long the second wave lasts, and the intensity of activity restrictions by governments.

As of now, it looks like the case and death numbers should start to ease by mid-May as our current expectation is that lockdowns are likely to be localised and not very intense and will mostly be short-lived, he said.

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