Money & Banking

Second wave of Covid poses credit-negative threat to economic recovery: Moody’s

Our Bureau. Mumbai | Updated on April 13, 2021

With Covid cases surging, ramping up the vaccine effort is of utmost importance   -  Bloomberg

'Countermeasures to combat second wave risk weakening the recovery'

The second wave of coronavirus infections poses credit-negative threat to India’s economic recovery, according to Moody’s Investors Service.

Referring to India recording its highest daily surge on April 11 since the start of the pandemic, pushing its active case load further past 10 lakh, Moody’s observed that the announced countermeasures to combat the second wave – some of which are due to remain in place at least until the end of April – risk weakening the economic recovery.

However, the targeted nature of containment measures and rapid progress on vaccinating the population will mitigate the credit-negative impact, it added.

Growth forecast

Moody’s observed that the second wave of infections presents a risk to its growth forecast (baseline forecast is for real GDP to grow 12 per cent in yearly terms in 2021) as the reimposition of virus management measures will curb economic activity and could dampen market and consumer sentiment.

“Retail and recreation activity across India had dropped by 25 per cent as of April 7 compared with February 24, according to Google mobility data. This was mirrored in the Reserve Bank of India’s March consumer confidence survey, which showed a deterioration in perceptions of the economic situation and expectations of decreased spending on non-essential items,” the agency said.

However, given the focus on micro-containment zones to deal with the current wave of infections, as opposed to a nationwide lockdown, Moody’s expects that the impact on economic activity will be less severe than that what was seen in 2020.

The agency emphasised: “India’s very low coronavirus death count (only about 170,179 deaths have been recorded as of 12 April) and relatively very young population also help mitigate risks. GDP is still likely to grow in the double-digits in 2021, given the low level of activity in 2020.”

Moody’s said vaccination will be a key element in managing the second wave as the authorities balance virus management against maintaining economic activity.

Published on April 13, 2021

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