Economic impact of Coronavirus: Bad in Jan-March, worse in April-June | Business Standard News

As of Wednesday morning, the number of Coronavirus cases in India reached 147, with 130 active, 14 cured or discharged, and three deaths. Across the country, the central and state governments have advised against non-essential travels, with some announcing shutting down of pubs, malls and restaurants and movie halls. Companies have enforced work from home and social distancing is being imposed.

The effects of the pandemic on economic activity are being felt far and wide, far beyond the airline, travel, tourism and hospitality sectors. Analysts see some impact to the January-March 2020 quarter gross domestic product. But the really deep cut will be seen in the April-June quarter (the first quarter of 2020-21), further exacerbating the slowdown in consumption and activity being witnessed in the Indian Economy.

“On the demand side, inoperability analysis for three sectors, namely transport, tourism and hotels, show significant impact on demand and hence output. On an aggregate basis, we estimate that the impact of a 5 per cent inoperability shock could be 90 basis points on GDP from Trade, Hotel, Transport, Storage and Communication segments, that could spread over FY20 and FY21, with a larger impact in FY21,” said Soumya Kanti Ghosh, Chief Economic Advisor, State Bank of India.

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“We are now looking at 4.3 per cent GDP growth for January-March and dropping to maybe 3.9/sub-4 per cent for April-June. The situation is very fluid, these forecasts will keep on changing depending on the sectoral data that we get,” said Aditi Nayar, Principal Economist, Icra Ltd.

In a note on Monday, Care Ratings Chief Economist Madan Sabnavis said that India’s 2020-21 GDP could be impacted by 0.5 per cent. This assessment was based on a survey of experts in various fields CEOs, CFOs, investors, analysts, economists and other stakeholders, conducted by Care Ratings.

Economists and experts warn that these assessments and forecasts will change depending on how much the virus spreads and what actions are taken by companies and central and state governments.

Unprecedented contraction in investment and manufacturing output in two successive quarters dragged down India’s economic growth to a 27-quarter low of 4.7 per cent in the quarter ended December 2019. Looking ahead, GDP growth is set to stagnate at 4.7 per cent in the March quarter (Q4) too, according to the annual estimate of 5 per cent by the National Statistical Office.

For 2020-21, Chief Economic Advisor Krishnamurthy Subramanian had forecast a GDP growth of 6-6.5 per cent. Even in recent commentary on the impact of Covid-19 on India, he has not changed those forecasts.

And the impact of the pandemic will be seen in other economic data as well, analysts say.

Exports bucked the six-month declining spree by registering modest 2.91 per cent growth in February 2020 at $27.65 billion, even as there were fears of the coronavirus effect on outbound shipments. All the major foreign exchange earners such as petroleum products, engineering goods, and electronic items registered expansion in the month year-on-year.

Consequently, trade deficit fell to the lowest level of $9.85 billion in the month. This would augur well for the current account deficit, which already fell to just 0.2 per cent of GDP in the third quarter of the current fiscal year from 0.9 per cent in the second quarter.

“The February data was surprisingly resilient. Next month onwards, we would expect to see both the imports and exports getting hit. Lower commodity prices will mean that there will be quite a good buffer,” said Nayar.

“On the direct exports side, a set of commodities may see some disruption where China is an important export destination. China is also an important source of critical inputs for various sectors. The lockdown in China has resulted in disruptions for many sectors. This will affect prices up the supply chain,” SBI’s Ghosh said.

Care Ratings’ survey also predicts further contraction in imports and exports for 2020-21.

Economists believe that there could be surplus in the current account balance in the fourth quarter of FY20. “For January, we are expecting a current account surplus, and for 2019-20 and 2020-21, we are expecting that current account deficit would be limited to $22-24 billion or so,” said Nayar.

“Initially when this started, we were more worried about the impact on imports coming in from China into the supply chain. Now it is becoming more of a concern of demand from Europe and United States. There will be a domestic impact from the services sector also,” she added.

Analysts say that as far as inflation is concerned, if the petrol and diesel prices don’t come down because of higher excise duties, then there is no reason to expect any major change in the inflation outlook.

It is not all grim though. Nayar said that rural demand outlook should now start to look better, and, in the age of e-commerce, there will still be demand for goods.

“What we have seen from the February data is that coal mining and electricity generation have shown a double digit growth. So some sectors may have their own kind of outlook. If there is large scale manufacturing shutdown, then the demand for electricity will be on the lower side. But as of now, we are not seeing the evidence of that,” she said.

via Economic impact of Coronavirus: Bad in Jan-March, worse in April-June | Business Standard News

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