Bengaluru : India’s economy is expected to recover early next year from the recession, but at a modest pace, according to a majority of economists in a Reuters poll who said their improved growth predictions were based on progress in growth. COVID-19 vaccines.
Recent vaccine news has propelled Indian stocks to repeated record levels and fueled hopes for a recovery in economic activity. That, along with holiday-driven demand, has increased optimism among economists over the past month.
Almost two-thirds of those surveyed, 26 out of 40, to an additional question said that their growth views, which have been raised for a month, are based on the progress of the vaccine.
“We expect the growth recovery to strengthen … helped by the continued normalization of economic activity, as incoming COVID-19 data remains benign and does not require large-scale shutdowns,” said Upasana Chachra, chief economist for Morgan Stanley India.
“We also assume that the availability of the vaccine in the first quarter of 2021 would help reduce tail risks and accelerate the pace of opening of the economy.”
The November 18-25 survey of nearly 50 economists showed that the economy would contract in the July-September and October-December quarters by 8.8% and 3%, respectively, but less than -10.4% and the -5% forecast last month.
The median expectation for the July-September quarter was an improvement for the first time since surveys began for the period in April 2019.
While the economy was expected to grow again, expanding 0.5% in the January-March quarter and emerging from the recession, the -8.7% consensus for the current fiscal year would mark the first full year of contraction in four decades.
The economy was then forecast to expand 9% and 5.8% in the next fiscal year and 2022/23, respectively, but it was not expected to return to pre-COVID-19 levels any time soon.
That’s in stark contrast to stock market strategists polled by Reuters this week, who overwhelmingly expect the company’s earnings to rebound over the next year.
But the recovery still faces several downside risks, including the availability and distribution of vaccines to more than 1.3 billion people in the country.
A resurgence of coronavirus cases in some parts of the country has prompted new closures, likely further damaging ongoing supply-side disruptions such as transportation, increasing the risk of high inflation over an extended period.
In fact, retail inflation, which has remained above 4%, the midpoint of the Reserve Bank of India’s target range of 2% to 6%, for more than a year, was expected to average above of the upper limit of that goal. fiscal year.
When asked how long the current low growth, high inflation trend would last, 36 of 41 economists said in three months, including 14 who said six months to a year.
That leaves little room for the central bank to relax, and the survey showed that economists have once again pushed the schedule for the next rate cut forward to the April-June quarter, from January to March forecast in the two previous surveys and from October to December in the August survey. .
While the consensus showed that the repurchase rate would drop 25 basis points to 3.75% in April-June, 24 out of 38 economists with a view said the central bank should not cut rates.
“The recovery is faster than expected and inflation has been high for longer than expected. While both growth and inflation could decline a bit in the coming months, there is no room for the RBI to increase stimulus.” said Prithviraj Srinivas, chief economist at Axis Capital.
“At best, you can maintain the current level of accommodation for a few more quarters.”
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