India Ratings said separately that it expects a contraction of 11.8% compared to the 5.3% contraction forecast previously, following a 23.9% deeper-than-expected drop in GDP for the June quarter.
Fitch’s estimate for India contrasts with its slightly improved projection for the global economy in 2020 – a 4.4% contraction versus a 4.6% drop seen in June. Fitch said India saw one of the world’s steepest GDP contractions in the June quarter, but noted that growth should pick up strongly in July-September amid the economy reopening. The Finance Ministry said on September 4 that “India is well on the way to a V-shaped recovery.”
India imposed a nationwide lockdown on March 25, progressively easing this starting in May. But a surge in Covid-19 infections prompted states to impose mini-shutdowns to contain the disease. India currently ranks second in coronavirus infections.
Fitch projects the contraction of India’s GDP at 9.6% in the September quarter, 4.8% in the December quarter and 4% in the January-March period of this fiscal year.
“India imposed one of the strictest roadblocks in the world in 2Q20 and domestic demand fell dramatically. Limited fiscal support, fragilities in the financial system and a continued rise in virus cases are hampering a rapid normalization of activity, ”he said in the World Economic Outlook-September 2020 Ongoing Recovery report published on Monday.
He said that the Indian economy will rebound in fiscal year 22, pinning growth at 11%. “The double-digit growth rate that we expect for 2021-2022 simply reflects the low base in 2020; we do not expect GDP to return to pre-virus levels until 1Q22,” he said.
Covid-19 infections continue to rise, forcing some states and Union territories to re-impose restrictions, although these localized containment measures are generally less stringent than those imposed in March-April, Fitch said. “The continued spread of the virus and the imposition of sporadic closures across the country depress sentiment and disrupt economic activity,” he said.
The slump in economic activity has hurt household and business incomes, while high inflation has put additional pressure on housing budgets, Fitch said.
Fitch revised its forecast for the US to a 4.6% contraction in 2020 from a previous 5.6% decline. China is expected to grow 2.7% compared to 1.2% in June.
It lowered its forecast for emerging markets excluding China to -5.7% from -4.7% in June.
The euro area is forecast to contract 9% during the year compared to a previous 8% drop due to steeper declines expected in the UK (-11.5%), France (-9%), Italy (-10%) and Spain. (-13.2%).
The United Kingdom, India, France, Italy and Spain stand out as laggards, he said, adding that they experienced strict and / or prolonged lockdowns in the April-June period, where mobility levels fell sharply and a surprise to GDP fell. compared to estimates made in June.
Previously, Nomura and State Bank of India Research had lowered their India GDP projections for fiscal year 21 to -10.8% and -10.9%, respectively.
“After the NSO (National Statistics Office) released Q1 GDP, I think the whole recovery path has shifted south,” said Sunil Kumar Sinha, Ind-Ra’s chief economist, during a webinar. on Tuesday.
India Ratings said the only positive point from the supply side was agriculture, as both industry and service activities have been badly affected. He expects agriculture to grow 3.5% in fiscal year 21 from the previous year.
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