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Two years of battling the COVID-19 pandemic is enough reason for gloom spreading across the world. Currently, many countries, including India, are in the grip of surging cases of the Omicron variant. Indeed, it continues to exert pressure on healthcare systems and flummox policy makers on the pace at which they should be winding down the stimulus measures put in place to support the broad economy.
Still, the Omicron wave’s pattern of rapid rise and fall in advanced countries and lower fatalities compared to the Delta variant yields a flicker of optimism that the economic rebound is not far away for most countries. A Nomura report dated 19thJanuary explains that the ‘fear factor’ of COVID-19 could soon fade, stating that it seems clearer now, than any time in the past two years, that the pandemic is transitioning to an endemic COVID-19. The report, which analysed the situation in five countries – South Africa, the UK, Canada, Australia and Ireland – with advanced Omicron waves, estimated that it took, on average, 31 days for the number of new daily cases (on a 7-day moving average basis) to peak.
Certainly, one outcome of a less fierce wave raises hope of renewed demand for services, be it education, sports, recreation, travel and tourism and restaurants, all of which were severely impacted due to sporadic waves, lockdowns and restrictions. Highlighting the case of US, the report says that in Q3 2021 “we estimate that American household consumption of goods surged to 7.6 percent above its pre-COVID trend, whereas consumption of services fell to 4.8 percent below its pre-COVID trend”. However, there could be a shift in household spending from durable goods that were so far in demand over the past two years to services. The Nomura report also points to seven other countries where this trend could pan out as the Omicron wave ebbs.
The moot question is, will a similar trend pan out in India? The latest bulletin put out by the Reserve Bank of India (dated 17thJanuary, 2022) paints a mixed view of the state of the economy. Manufacturing and several categories of services are in expansion. Aggregate demand conditions remain resilient. However, it does highlight that the pandemic severely dented consumer confidence in India, “with sentiments of households across strata influenced by the spread of infections and fatalities”.
But on a brighter note, it says Omicron may turn out to be more of a flash flood than a wave. How this actually plays out in India, where the wave is plateauing in some of the metros where it spiked but is spreading to other parts, will become known in coming weeks and months. The hope is that India's experience is no different from that of the countries mentioned in the Nomura study, as that would be a welcome relief to the economy and investors.
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Vatsala Kamat
Moneycontrol Pro
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