Texas has already begun a gradual reopening this week with their Governor letting the stay-at-home order expire on Thursday as scheduled and allow businesses to begin reopening in phases from Friday. The move will see restaurants, retailers, movie theaters and malls to be operate at up to 25 per cent of capacity as long as they follow social distancing guidelines. Bars, barbershops, hair salons and gyms, however, remain closed.
“A second phase of business reopenings could come as soon as May 18 when businesses would be allowed to operate at 50 per cent capacity. In Georgia salons, barbershops, tattoo parlors, gyms and bowling alleys were given the green light to open last Friday, while restaurants resumed dine-in service and movie theaters were allowed to reopen on Monday,” Wood wrote.
These developments, Wood believes, will get a thumbs-up from the markets
in the days ahead. Their attention them, would turn to whether the aggressive monetary and fiscal policies announced by global central banks, especially the US Federal Reserve (US Fed), will be withdrawn. In his view, the US Fed has already played its main role in this crisis by its aggressive move on corporate bond purchases, which reversed the alarming rise in credit spreads.
“Most likely, the policies will be withdrawn much more slowly than they are introduced. That is if they are withdrawn at all. For now the central bankers are still competing to announce more 'easing' and being duly cheered on, as usual, by the financial chattering classes,” Wood wrote.
Meanwhile, back home, most analysts expect the Reserve Bank of India (RBI) to continue with its accommodative stance and lower rates in financial year 2020-21 (FY21) as well in order to support the economy. Fitch ratings expects the Indian central bank to cut key rates by 75 basis points (bps) by March 2021 as the measures undertaken till now to support the economy remain insufficient.
Given the sudden shock to the economy in the backdrop of the coronavirus
pandemic, analysts at Nomura, expect the government to temporarily suspend the Fiscal Responsibility and Budget Management Act (FRBM), and will push the fiscal deficit beyond the 0.5 per cent of GDP that the current fiscal rules allow.
“Consequently, we believe the central government’s fiscal deficit will rise to around 5.1 per cent of GDP in FY21, with considerable upside risk, depending on the quantum of forthcoming fiscal support. With states’ budgets combined, the consolidated fiscal deficit will expand to around 9.5 - 10 per cent of GDP, close to record highs in the recent past. Additionally, lower nominal GDP growth, along with rising contingent liabilities (support to banking sector) are likely to materially raise the public debt-to-GDP ratio,” Nomura cautions.