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Private consumption to pick up in next few quarters: Moody's

Private consumption as well as non-residential investment are expected to materially pick up over the next few quarters, Moody's Analytics said on Thursday.

Private consumption to pick up in next few quarters: Moodys
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This will strengthen the domestic demand revival in 2021, it said in a research report.

The report noted that domestic as well as external demand have been on the mend since the easing of restrictions leading to improved manufacturing output in recent months.

"Overall, our baseline forecast is for real GDP to grow 12 per cent in yearly terms in 2021 following a 7.1 per cent contraction in 2020."

"The strong yearly growth is partially the result of a low base-year comparison."

Besides, the report gave a forecast equivalent to real GDP, in level terms, stating that growth is expected to climb up by 4.4 per cent above pre-Covid-19 levels (as of March 2020) by the end of 2021, or equivalently, by 5.7 per cent above the GDP level in December 2020 by the end of 2021.

Furthermore, it said that monetary and fiscal policy settings will remain conducive to growth.

"We do not expect any additional rate cuts this year below the current 4 per cent at which the benchmark repurchase rate is being maintained."

According to the report, some additional fiscal support may be mobilised during the second half of the year, depending on the softness in domestic spending.

"Direct forms of fiscal support such as income tax cuts, however, are less likely in the current setting."

"We expect the budget for fiscal 2021-2022 to drive the annual fiscal deficit to nearly 7 per cent of GDP. It includes additional expenditure on infrastructure development, and the associated benefits in the form of employment creation should accrue over the coming quarters."

As per the report, core inflation is expected to see a more controlled rise in 2021, although food-price or fuel-driven inflation can become a recurring factor, weighing on households' disposable income.

"A strengthening second wave of Covid-19 remains the key risk to recovery in 2021. The good news is that the resurgence appears to be limited to just a few states, which should increase the chances of containing the spread at an early stage."

"Our baseline forecasts assume that state governments are likely to adopt a targeted approach through limited-duration curfews and shutdowns if the situation deteriorates rather than large-scale shutdowns of the kind seen during the first wave."

In addition, it said that vaccinations hold the key to sustaining domestic recovery.

"Total vaccinations crossed the 35 million mark on March 16. However, the various logistical constraints and the sheer scale of implementation could negatively impact the pace of inoculations in the months ahead and eventually the timing of achieving herd immunity."

"Our March baseline forecast assumes that herd immunity is unlikely to be reached before the end of 2022."

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