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COVID-19 toll on Indian economy deepens, jobs crisis to worsen - Reuters poll

COVID-19 toll on Indian economy deepens, jobs crisis to worsen - Reuters poll

FILE PHOTO: A view shows empty roads during a 14-hour long curfew to limit the spreading of coronavirus disease (COVID-19) in the country, in Ahmedabad, India, March 22, 2020. REUTERS/Amit Dave

BENGALURU: India's economic outlook has weakened again, albeit slightly, with worst-case scenario forecasts suggesting the toll from the coronavirus 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 coronavirus 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 21.6per cent annually, and to 9.8per cent on average for this fiscal year, down from 23.0per cent and 10.4per cent respectively a month ago. The economy was then forecast to grow 6.7per cent next fiscal year, compared to 6.5per cent 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".

None expected a "strong recovery, followed by an upgrade".

"Recovery in India was strong in the months before the second wave. 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 this year," said Wouter van Eijkelenburg, an economist at Rabobank.

"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."

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 6.8per cent growth this fiscal year after its deepest ever recession last year.

"Let's hope (the situation) doesn't go there. 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," said Gareth Leather, senior Asia economist at Capital Economics.

"The threat of further waves will hang over the economic outlook so long as India's vaccination progress remains lackluster."

India's unemployment rate soared to a near one-year-high of 14.73per cent in the week ending May 23, according to the Center for Monitoring Indian Economy (CMIE), reflecting the impact of the economic slowdown.

When asked if there was a risk that India's unemployment situation could worsen over the coming year, more than 85per cent, or 25 of 29 respondents, said it was high, including four who said very high. The remaining four said the risk was low.

"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.

The Reserve Bank of India has kept its monetary policy loose, including several liquidity measures, and was expected to stay on an easy course for this fiscal year.

While calls have increased for more fiscal stimulus to speed up the economic healing, the government has limited space to respond to challenges posed by the health crisis.

"If the Indian government increases spending ... it will probably prevent a loss in economic output in the short term, but this simultaneously puts more pressure on the sustainability of debt in the longer term, essentially mortgaging their future," said Rabobank's Eijkelenburg.

"India's policymakers find themselves between a rock and a hard place when it comes to decisions on additional fiscal stimulus."

(Reporting by Vivek Mishra; Polling by Shaloo Shrivastava; Editing by Rahul Karunakar and Catherine Evans)

Source: Reuters

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