Second wave of COVID-19 poses risk to economic recovery; Q4 GDP to be hit, says BofA Securities report

By: |
Updated: April 16, 2021 3:41 PM

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.

The business resumption index slipped to 60 for the week ended May 23, down from 63 in the previous reporting week, it said, adding that these levels were last seen in June 2020.The business resumption index slipped to 60 for the week ended May 23, down from 63 in the previous reporting week, it said, adding that these levels were last seen in June 2020.

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. 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.

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 anaemic loan growth only buttresses our view of a weak recovery,” the report concluded.

Do you know What is FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Lower Barriers: India’s tariffs record sharp drop from 17.6% in 2019 to 15% in 2020
2Kharif 2021: Clouds over Fasal Bima as states miss deadlines
3In times of crisis, the Centre must support the states: Dr Y V Reddy