Fitch puts economic contraction at 10.5%
India’s economy is expected to contract 10.5% in the current fiscal before bouncing back in the next financial year, Fitch Ratings said on Tuesday. India’s gross domestic product (GDP) contracted by a massive 23.9% in April-june and some agencies have predicted negative growth even during the Julyseptember quarter of the current fiscal (April 2020 to March 2021). “GDP should rebound strongly in 3Q20 (October-december) amid a re-opening of the economy, but there are signs that the recovery has been sluggish and uneven,” Fitch said.
NEW DELHI: Goldman Sachs and Fitch Ratings on Tuesday forecast deeper-than-previously estimated economic recession for India in FY21, holding that limited fiscal support, fragilities in the financial system and a continued rise in Covid-19 cases are hampering a rapid normalisation in economic activity.
Investment bank Goldman Sachs anticipates India’s GDP to shrink 14.8% this fiscal against its earlier estimate of an 11.8% contraction. Fitch Ratings, meanwhile, cut its growth forecast for India for FY21 to a contraction of 10.5%, more than double the 5% contraction projected in June.
The latest estimates by Fitch and Goldman Sachs are among the worst for the Indian economy for this fiscal, which may make it the deepest contraction so far in India’s history.
The previous lowest was a GDP contraction of 5.2% in fiscal 1980. India’s economy contracted 23.9% in the June quarter in the steepest pace in four decades. It was the worst performance among G20 nations, and significantly below expectations of most economists, as the stringent Covid-induced national lockdown created a doublewhammy through both a supply and demand-side shock as businesses shut operations while consumers were forced to stay home.
“In light of the Q2 (June quarter) GDP report, we are making further significant adjustments to our GDP forecasts for India. We now forecast Q3 (September quarter) 2020, and Q4 (December quarter) 2020 at GDP growth of -13.7% YOY and -9.8% YOY, respectively (against -10.7% YOY and -6.7% YOY previously). Our estimates imply that real GDP falls by 11.1% in calendar year 2020, and by 14.8% in FY21 (vs growth of -9.6%, and -11.8% in our previous forecasts),” Goldman Sachs said in a research note. However, Goldman Sachs upgraded its expectations of a rebound next year.
In its latest Global Economic Outlook for 2020, Fitch Ratings revised its global GDP estimate to a contraction of 4.4% from a contraction of 4.6% estimated in June.
The rating agency said India’s GDP should rebound strongly in the September quarter amid the reopening of the economy, but there are signs that the recovery has been sluggish and uneven.