By the beginning of July, it was evident to Citi Economists the COVID-19 curve had not yet peaked despite the government’s efforts to open up the economy again. They forecast consumer and business sentiment was likely to remain depressed and a return to pre-COVID-19 economic activity levels wasn’t likely until the end of 2020. A return to pre-COVID-19 economic growth rates would take much longer. This prompted a reduction in their real GDP forecasts for fiscal 2021 (year ending March 2021).
Improvement in controlling the spread of the virus stalled in mid-June when the strict lockdowns were gradually relaxed. For almost for 50 days there wasn't too much good news to report on the COVID-19 spread front. However, virus spread data for the first 16 days of August finally indicates a perceptible improvement across a variety of relevant parameters.
While the share of rural districts in daily new cases has increased to 52% (vs 23% at the end of June), there is a moderation in the doubling rate (the number of days it takes for the number of COVID-19 cases to double) even in rural districts. The total number of districts (rural+urban) with a greater than 6% daily change in new confirmed cases has fallen to 66 vs 203 at the end of July. These districts now represent just 5% of GDP (vs 25% at the end of July).
This broad-based moderation in COVID-19 could give the government some confidence while deciding the extent of relaxations under the next “Unlock” phase post the end of August. This could help open up the economy and bodes well with our view of sequential activity improvement in the second quarter (September) and beyond.