Has the third wave’s economic disruption bottomed out?

Updated on Feb 04, 2022 04:57 AM IST

There is a broad consensus that the health costs of the third wave – the large number of cases notwithstanding – have been significantly lower than the second wave, which peaked on May 9, 2021 in terms of seven-day average of daily new cases.

As the number of cases increased, many state and local governments rushed to impose mobility restrictions to contain the situation.(ANI Photo)
As the number of cases increased, many state and local governments rushed to impose mobility restrictions to contain the situation.(ANI Photo)
ByRoshan Kishore and Abhishek Jha, Hindustan Times, New Delhi

The Omicron-driven third wave of the Covid-19 pandemic in India erupted last month. As the number of cases increased, many state and local governments rushed to impose mobility restrictions to contain the situation. There is a broad consensus that the health costs of the third wave – the large number of cases notwithstanding – have been significantly lower than the second wave, which peaked on May 9, 2021 in terms of seven-day average of daily new cases. But what about its economic impact? The Nomura India Business Resumption Index (NIBRI) fell sharply because of the third wave. Its value was 120.2 in the week ending December 26,2021 and it reached 100.5 in the week ending January 23, 2022. A NIBRI value of 100 refers to pre-pandemic levels of economic activity. Nomura Global Research has not released the latest NIBRI value this week. What do other indicators tell us about the economic impact and longevity of the disruption on account of the third wave? Here are three charts which try and answer this question.

Number of daily new cases started falling in January itself

The seven-day average of daily new cases reached a peak of about 312,000 on January 25, as per HT’s Covid-19 dashboard. This number has fallen sharply to 204,000 by February 2, as per the latest available figures. When read with the fact that the national case positivity rate – positive cases per test – fell from 16.7% to 12% during this period, it suggests that India has crossed the worst of the third wave already, although some regions might see a delayed peak.

A decline in new cases has been followed by a gradual restoration of mobility levels

Mobility levels did not fall as sharply during the third wave as they did during the second wave. This can be seen clearly from a comparison of non-essential mobility levels –this includes mobility levels for parks, retail and recreation, workplaces and transit stations. However, this does not mean that there was no impact of the third wave on mobility levels at all. One category which was affected the most was retail and recreation, perhaps a result of weekend curfews and night curfews imposed in large parts of the country. Even on this limited setback, the trend has already reversed, including in the retail and recreation category where, however, the deficit remains larger than other sectors.

What about the actual economic impact of the third wave?

Production seems to have been spared a big shock

The only high-frequency indicator available on the economy’s performance in January 2022 is the IHS Markit Purchasing Managers’ Indices (PMIs) for manufacturing and services. While both manufacturing and services PMI have shown a moderation in January, neither has fallen below the psychological threshold of 50. A PMI value below 50 signifies a contraction in economic activity compared to previous month’s levels. Also, the moderation in the January 2022 PMI values is in keeping with the trend in the past few months. At 54 and 51.5, PMI manufacturing and services values in January 2022 marked the second and third consecutive month of contractions in the two indices. PMI manufacturing and services have been continuously above the 50-mark since the month of June and July 2021 respectively.

“In line with most of its emerging market Asian peers, India’s manufacturing PMI retreated further, but remained expansionary. India stood in the middle of EM pack on sequential manufacturing PMI performance,” said a note by Madhavi Arora, lead economist at Emkay research. “The new Covid wave had a mild impact on manufacturing activity, but still overall level of business confidence (subset of index) tumbled to a 19-month low,” the note added. It also predicted a “rebound in services activity ahead as Covid impact fades and most of the activity curbs are being removed”.

See Chart 3

Impact on consumer confidence will only be known when RBI releases its survey

Until November, when mobility levels were still rising, consumer sentiment about the current situation as well as expectations about future were improving, according to Reserve Bank of India’s Consumer Confidence Survey. However, they were only around the levels seen before the beginning of the second wave and far from pre-pandemic levels. It is likely that this recovery suffered in the current wave, but we will know how much only when the results of the latest round of the survey is released next week after the Monetary Policy Committee meeting.

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