Home Big Grid Gradual economic recovery in 2021, unlike V-shaped rebound of 2020: Report

Gradual economic recovery in 2021, unlike V-shaped rebound of 2020: Report


Lockdowns of differing intensity and restrictions imposed by the states in April and May to contain the second wave of the deadly Covid-19 pandemic has likely led to the Indian economy contracting by 12 per cent in the June quarter as against 23.9 per cent contraction in the same quarter in 2020, says a report by UBS Securities India.

Unlike the V-shaped recovery in 2020, the brokerage firm expects the Indian economy to have only a gradual recovery this time, as consumer confidence remains low due to pandemic-related uncertainties.

The economy had its worst contraction on record in FY21 at 7.3 per cent as the 2.5 months of unplanned lockdown announced by the centre with just a four-hour notice had crippled the economy in the first quarter with a massive 23.9 per cent contraction, which improved to -17.5 per cent in the second quarter, the report notes.

But the economy showed a sharp V-shaped recovery from the second half when it posted a 40 bps positive growth and in Q4 clipping at 1.6 per cent, containing the overall contraction at 7.3 per cent for the year.

This 12 percentage point contraction will have the economy missing a sharp V-shaped recovery this time around, unlike seen last year after the national lockdown was lifted, as consumer sentiment remains very weak this time around as Indians remain distinctly more worried about the pandemic than last year, it adds.

PTI quoted Tanvee Gupta Jain, Chief India Economist at UBS Securities as saying that the indicator suggests that economic activity has contracted an average of 12 per cent in the June 2021 quarter as against 23.9 per cent in June 2020 quarter.

This is despite the indicator rebounded to 88.7 in the week to June 13, up 3 per cent week-on-week after many states eased localised mobility restrictions from the last week of May.

“We expect economic recovery to gain momentum from H2 as we see vaccination ramp up and the resultant control of the pandemic lifting consumer and business confidence from them,” Jain says.

“We still expect only a sequential pick-up in economic activity from June and not a V-shaped recovery as in 2020,” she adds.