By Dr. Arun Singh,
Chief Economist
Dun & Bradstreet India
26-Mar-20

Economy Observer

COVID-19 lockdown on commerce and people will impact economic growth severely

Real Economy: Index of industrial production (IIP) is expected to register slightly higher growth in the month of Feb 2020. Tentative signs of recovery were visible during the beginning of the quarter, indicated by the increase in the optimism levels, before the COVID 19 pandemic gathered force in late Feb. Lockdowns and restrictions on commercial activities and people gatherings are likely to strongly impact global and domestic growth from March 2020 onwards. Dun & Bradstreet expects the Index of Industrial Production (IIP) to remain subdued by 4.0%-4.5% during Feb 2020.

Price Scenario: Slowdown in demand and production activities, a sharp fall in the global price of crude oil, and price decreases in other major commodities such as energy, base metals and fertilizers etc. are expected to exert downward pressure on inflation. Moreover, market prices of some of the commodities such as vegetables and protein items have come down from the high levels witnessed during the previous few months. Dun & Bradstreet expects the CPI inflation to remain in the range of 6.5%-6.7% and WPI inflation in the range of 2.35%-2.5% during Mar 2020, respectively.

Money & Finance: TheCOVID-19 induced increased risk aversion and the tightening of financial conditions has resulted in hardening of yields and widening of spread between the short-term and long-term bond yields. The intervention of the RBI in the market to provide liquidity is expected to keep yields under check, which in turn will soften the corporate bond yield. Dun & Bradstreet expects 15-91-day T-Bill yield to average at around 5.0%-5.1% and 10-year G-sec yield at around 6.5%-6.7% during Mar 2020.

External Sector: Rupee is expected to witness depreciation pressures along with other Asian currencies due to the COVID 19 outbreak and its impact on trade, global growth and increase in risk aversion amongst foreign investors. Dun & Bradstreet expects the rupee to remain at around 73.8-73.9 per US$ during Mar-2020.

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