Business activity down 76% of pre-pandemic level due to lockdowns

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New Delhi: Business activity has fallen by a fourth of the pre-COVID levels due to lockdowns imposed by states to contain the spread of the second wave of COVID-19, Japanese brokerage Nomura said on Tuesday.

However, it said the falling activity levels will have a muted economic impact and maintained its growth estimates for the year, saying the lockdowns present downside risks.

As of April 25, the Nomura India Business Resumption Index (NIBRI) registered its steepest weekly fall in over a year of 8.5 percentage points to 75.9, which is 24 percentage points below pre-pandemic normal, the brokerage said in a statement.

It noted that as lockdowns take effect, mobility has experienced a significant hit and there are signs of the economic pain spreading to the wider economy in facets such as power demand, GST e-way bills, railway freight.

However, the impact still appears small compared to the first wave and other indicators like labour force participation rate have remained resilient. But with more states extending restrictions, sequential momentum is likely to remain weak over the next month, hurting GDP growth in April-June period.

There are reasons to expect a muted economic impact. The experience from other countries suggests a lower correlation between falling mobility and growth. Parts of the economy like manufacturing, agriculture, or work-from-home and online based services should be resilient, it said, maintaining its 11.5 per cent growth forecast for 2021.

The brokerage said as the pace of vaccination picks up, which it expects from June, there should be another return of pent-up demand, in addition to other tailwinds like strong global growth, lagged impact of easy financial conditions, and front-loaded fiscal spending.

The ongoing second wave should remain a short-term negative economic shock which is likely to be localised to the June quarter and the medium-term growth outlook remains stable, it said.

The sharp slowdown in ultra-high frequency indicators since April and extended restrictions does suggest downside risk to its GDP growth projection of 11.5 per cent in 2021 as against a contraction of 6.9 per cent experienced in 2020.

“We are currently experiencing the peak economic impact of the second wave as states continue to tighten and extend restrictions,” it said.

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