Omicron-induced curbs may pull down Q4 GDP by 10-30 bps, say some experts

Many others agree on the likelihood of damage, but don't offer numbers, saying it is too early and difficult to put estimates in such a changing environment

The spread of Omicron and resultant restrictions by some states have lent some uncertainty to the country's economic outlook. Economists are now saying that there could be mild downward risk to their earlier forecasts as restrictions would affect services, the biggest sector of India's economy.

The curbs may pull down economic growth in the range of 10-30 basis points in the fourth quarter, some of them said. However, many of them said it is too early and difficult to put estimates in such a changing environment.

Bank of Baroda chief economist Madan Sabnavis said GDP in the fourth quarter may be pulled down by 10-20 basis points if restrictions persist during the period. Services will be mainly affected, he said.

HDFC Bank chief economist Abheek Barua said there is a downside risk to his growth forecast to the tune of 20-30 basis points in the fourth quarter. HDFC Bank has pegged the economic growth at 6.1 per cent in the quarter.

In a note, HDFC Bank said the downside risks emanate from additional states imposing restrictions, curbs extending beyond January 22 and a slowdown in global recovery which will weigh on exports.

Crisil chief economist D K Joshi said he is retaining the growth outlook at 9.5% for the entire financial year with a mild downward bias.

"The third quarter has been quite good -- somewhat better than our expectation. But the fourth quarter will be adversely impacted. The quantum of impact is hard to quantify as the situation remains fluid," he said.

Joshi pointed out that since successive waves have been found to be less damaging to the economy due to living with a virus attitude, economic impact will not be severe. "Contact based services will suffer the most," he said.  

Icra chief economist Aditi Nayar said her early analysis suggests that the impact of an omicron wave may be limited to  one quarter from a medical duration point of view, as well as the better preparedness of governments, the health care system and households.

"However, there continues to be a lot of uncertainty around this. The impact on GDP itself will depend on how much restrictions proliferate in the coming weeks. As of now we see a modest downside to our forecast of FY'22 GDP expansion of 9%," she said.

Yuvika Singha, economist at OuantEco Research,  said they have downscaled the full year GDP to 9.6 per cent from earlier 10 per cent with mild downside risks.

She said QuantEco was calling for downside risk earlier too, but Omcron has reinforced it.

"Besides Omicron,  we were seeing downside risks from elevated commodity prices, input costs, end of festive season, waning of pent up demand and slowing growth," she said.

Dun & Bradstreet chief economist Arun Singh said the advent of Omicron has clouded the economic outlook for 2022.

He said India will not remain decoupled if global growth weakens as countries are forced to close their borders or implement domestic restrictions.

He expected the pace of growth to slow down in the first half of 2022 and then to pick up momentum.

"As uncertainty over Omicron looms large, supply chain bottlenecks will not be the biggest challenge to growth. The recent spurt in the number of cases witnessed in some of the states is adding to concerns about renewal of various forms of restrictions. A demand downturn or fading optimism levels could be more painful," Singh said.

He said the rising inflationary pressures is also likely to dampen the confidence levels for spending and restrain the pace of revival in demand as the private consumption expenditure is still below pre-pandemic levels.

Soumya Kanti Ghosh, chief economic advisor at SBI group, it is too early to comment.

He does not think that the virus will affect GDP numbers in the fourth quarter as yet. "This virus is too mild," he said.

Yes Bank chief economist Indranil Pan said he doesn't have any percentage point assessment of how much damage Omicron will do to the economy.

He said there is damage to the economy and this damage in the short term will be on the consumption demand.

"Investment demand will have a significant lag to pick up though the policy atmosphere from the government is relatively good and interest rates remain docile," Pan said.

Risks are definitely towards the downside, but there is no way to capture the quantification of those risks, he argued.

Sunil Sinha, principal economist at India Ratings, said: "We have not quantified the Covid 3.0 impact on the economy, but the impact will definitely be lower than Covid 1.0 and 2.0."

He said the primary reason for his assessment was that Omicron might infect more people than earlier episodes but was not life-threatening. "This simply means restrictions imposed by the governments will be less onerous for businesses and conduct of economic activities."