Goldman: Q2 GDP projected to be -45% from -20% in FY21

Goldman Sachs expects India's GDP to contract by 5% in 2020-21 (Apr-Mar) with the Jul-Sep growth rate seen contracting 45% on quarter.

It had earlier projected Jul-Sep GDP to contract by 20% with GDP growth in the current financial year contracting by 0.4% on account of the COVID-19 pandemic and the subsequent nationwide lockdown.

"The deeper trough in our Q2 (Jul-Sep) forecasts reflects the extremely poor economic data we have received so far for March and April, and the continued lockdown measures, which are among the most stringent across the world," it said.

India's nationwide lockdown was extended till May 31 by the Centre on Sunday with states being given more leeway to decide the activities that can be allowed during the lockdown.

"The (-)5% growth we forecast for FY21 would be deeper compared to all "recessions" India has ever experienced," Goldman Sachs said. Further, Goldman Sachs expects a "strong sequential mechanical rebound" in Oct-Dec. However, beyond Oct-Dec, it expects only a gradual recovery, as the targeted policy support continues to be "tepid" compared with other emerging economies.

As per the report, the structural reforms announced by the gover nment over the past few days are more medium-term in nature and are not expected to have an immediate impact on reviving growth.

"Our calculations, in fact, suggest that in aggregate, the discretionary component of fiscal support across the six phases of announcements by the Finance Ministry...stands at 1.3% of GDP much smaller than the aggregate figure of 10% of GDP economic package announced by the Prime Minister," it said in the report.

Goldman Sachs said while the lack of fiscal space implies that India cannot have a fiscal response of 10-15% of GDP as seen in several advanced economies, but amidst a globally and domestically unprecedented shock, a larger, carefully calibrated, and properly executed discretionary fiscal response is clearly warranted.