S&P Global Ratings sees signs of strong rebound in economy after second wave

Our Bureau New Delhi | Updated on September 28, 2021

However, rating agency notes the lag in vaccination in India

Global firm S&P Global Ratings said on Tuesday there are indications of strong rebound after last Covid surge but noted the lag in vaccination. However, it has maintained its growth projection of 9.5 per cent for the current fiscal.

India eyes rating upgrade

In its report, titled “Economic Outlook Asia-Pacific Q4 2021: Growth Slows On Covid-19 And Rising China Uncertainty,” the firm noted that domestic macro indicators remain weak in India, though recovering. “The April-June period saw a steep contraction in activity on the back of a severe Covid-19 wave, but high-frequency indicators suggest a strong rebound over July-September,” it said.

These remarks come at a time when India is pitching for a rating upgrade. As of now, all the global firms have placed India in the last investment ranking. However, India feels its performance has improved and it has never defaulted, so it should be given an upgrade. Now, firms will finalise its position once their consultation with the government and various stakeholders are completed.

Also read: Securitisation pool collections improve as restrictions ease: Crisil Ratings

S&P growth projection is in line with RBI which also estimated growth rate of 9.5 per cent for the current fiscal. However, it is lower than ADB’s revised projection of 10 per cent. Various agencies have projections ranging between 8.5 and 9.8 per cent.

Meanwhile, S&P said that households and micro and small enterprises were most affected in the latest downturn and will slow the recovery while they repair their balance sheets. Inflation remains relatively high, and public debt worries persist. “Faster-than-expected tapering could cause capital flow risks as monetary policy in India remains highly accommodative with real interest rates in negative territory,” it said.

Muted inflation pressure

It also mentioned that inflation pressures are still muted in much of the region. It acknowledged that other fundamentals such as the reserve buffers and current account shortfalls are better than in 2013, when India was one of the “Fragile Five” economies caught in the crosswinds of Federal Reserve tapering.

The firm said that vaccination rates have picked up noticeably across the region since its last report. Indeed, some economies are catching up with the US and Europe in terms of coverage. “The advanced economies in Asia-Pacific are generally vaccinating their populations more quickly (excluding Taiwan) while the emerging economies of India and South-East Asia (excluding Malaysia) generally continue to lag,” it said.

Though there is no change of growth projection for India, it has revised the forecast for China by 30 basis points to 8 per cent growth for 2021 as private demand recovery still looks soft and there is higher near-term uncertainty. “We revised our 2021 growth forecast lower for the South-East Asia emerging markets by 1.2 percentage points to 3.1 per cent. For the high-income Asia economies, we forecast growth of 3.6 per cent, down from 3.8 per cent previously, as international trade is supporting growth even as domestic demand weakened,” it said, while highlighting that New Zealand and Singapore are the only economies in Asia Pacific estimated to have faster growth in 2021 than its previous forecast in June.

Published on September 28, 2021

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