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ICRA Ratings has warned that the third wave of the pandemic is likely to shave 40 bps off the fourth quarter Gross Domestic Product (GDP) growth that may print in at 4.5-5 per cent. Third wave of the pandemic has seen a massive spike in infections after the more infectious Omicron variant of the coronavirus appeared. Admitting that it is too early to take a firm view as the third wave has just about started, the agency’s chief economist Aditi Nayar said given the early indications and the speed with which new infections are being reported, it can be surmised that there could be more mobility restrictions that will impact economic activities, especially in contact-intensive sectors.

However, she has retained the ‘full year GDP forecast at 9 per cent, with moderate downside risks’, and said anyways ICRA’s forecast was the lowest among the consensus numbers which vary from 8.5 to 10 per cent, with the RBI pegging it at 9.5 per cent. It is too early to revise the full year GDP growth down given the lack of data on the likely impact of the third wave. Besides, the government spending data for December is not out yet.

The agency has also retained Q3 growth forecast at 6-6.5 per cent, and said many high-frequency indicators have flattened in November, with slack emerging after the festive season and supply disruptions caused by heavy rainfall in the south. Nayar said ‘Our early analysis suggests that the impact of the Omicron wave may be limited to one quarter (Q4) in terms of the duration of the surge in fresh cases, as well as the economic impact given the better preparedness of governments, healthcare system and households.’ She also said given the recent surge in COVID-19 cases and widening of restrictions leading to heightened uncertainty, it is increasingly unlikely that the RBI will commence the much-delayed policy normalisation next month itself, unless inflation provides an acutely negative surprise.