The 2nd wave of Covid 19 has now come up and it seems that the game of lock and unlock will have more impact on the economy rather having full lockdown. The number of has started increasing in India as well as in the US. In the last 24 hours, India witnessed around 19000 covid new cases and the US got registered 52000 new cases. Once the international flights are opened up the economic cost will be significantly high as the number of infection will increase. Well in this in insight we all find that the US will not only have a tough time but its Presidential election will be impacted and might be postponed. In the Month of July 2020, India will witness more job cus and more pay cuts as easy money are gone and corporates can't bear any more.
The world will need more trillion-dollar and extended programmes to support and fight from this lockdown and unlock strategies. The 2nd wave of infection will now throw out many industries and companies followed with economic collapse numbers being revisited again. India is currently going through the numbers of 20000 each day which makes it scarier as the rate of compounding is expanding. The government at state level faces significant problems of the rising number of patients.
The U.S economy passed two quarters and the results of macro numbers and corporates will be painful. Well, the market is busy discounting all these numbers and the hope is that H2 the global economy will recover. Well if the game of unlocking and lock goes on and people behave recklessly then global GDP is bound to suffer more. All macro numbers will be revisited and more importantly, the impact on economies like India will be high enough.
Among all these things there are certain green shoots of economic growth which cannot be ruled out. . Power demand (7 day MA) is now down only 5% YoY vs. -20% on 7 Jun. E-way bill generation has improved to -49% in Jun (vs -53%) and Vahan registrations to -46% (vs -88% in May). The GST number of June has been good enough. Tax collections (net), which have contracted by 70% during these 2 months account for 2.1% of the budget estimate for FY21 as against 7% recorded during April-May 2019. Lower tax collections were recorded in key revenue heads like personal income tax (41% lower), CGST (69% lower), customs (66% lower), excise duties (36% lower).
The most important aspect is the increase of a number of people getting infected and the drain out of savings and diversion of consumption towards healthcare products. In simple terms, the increasing numbers of covid patients irrespective of the recovery and the rising death numbers lead to a significant impact on the consumption side. Revenues will come down more as more people face the threat of infection as health makes people more careful towards spending
Further those employers who gave full salary in the last 2 month from the time of lockdown may not be able to pay in the coming months. Salary cut will now be on a larger scale and this will place major brakes on the left over consumption which happened in the last 2 months.
There will be a significant change over in the coming months as pay packages are now getting tweaked and variable pay component is becoming a larger part of the salary which creates immense the problem for the Indian consumption market.
US economy will have to burn more cash and its Presidential election might have to be postponed if the virus affected keeps rising and the population and economy are severely damaged. Emotional wellbeing has now become a challenge for the US economy. The US employment data is not so important as compared to the future wage outlook and how many are practically employed in a full-time job. The pace of future wage growth is going to be one of the weakest and every economy is going to face the same heat. The pandemic will not only defer election chances of US alone but many more countries are bound to follow the same.
Indian government latest package announced by the Prime Minister will keep the migrant labours away from urban society and hence the shortage of labour will need to be accepted by India for a quite some time. Government support is bound to fall short and the economic pain is about to be felt in a massive way in the coming months as corporates are drying out of liquidity and the same will spill-over to consumers now. The household balance sheet is now heading for wild toss.
Well, the printing of dollar and rupee might be the last resort to save. Don't expect the private to invest for the next 2 years as CAPEX and balance sheets both are now is the semi-coma stage.
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