Global rating and research houses such as Fitch and Goldman Sachs have cut their estimates of growth for India’s gross domestic product (GDP) for the current fiscal year 2020-21 (FY21). While Fitch now expects the country’s GDP to contract 10.5 percent in fiscal year 21 compared to its previous estimate of a 5 percent contraction in this period, Goldman Sachs is forecasting a more pronounced contraction of 14, 8 percent (-11.8 percent previously forecast) in fiscal year 21 and 11.1 percent. percent (-9.6 percent earlier) in calendar year (CY20).
The downward revision of India’s forecast for Fiscal Year 21 comes on the heels of a sharp contraction in the Indian economy in April-June 2020, when GDP posted a negative 23.9% YoY (YoY), the worst performance in nearly four decades.
“The severe drop in activity has hurt incomes and balance sheets for households and businesses, amid limited fiscal support. An imminent deterioration in the quality of assets in the financial sector will hold back the provision of credit amid the weakness of bank capital reserves. Additionally, high inflation has added strains to household income, ”Fitch said.
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A common thread running through their comments is hope for a faster recovery in the future. Fitch expects GDP to recover strongly in the third quarter of calendar year 2020 (Q3-20) as the economy reopens. However, he warns that the recovery has been slow and uneven.
“The PMI balances have recovered, but they imply that the level of activity is still well below its pre-pandemic level in the third quarter of 20. The still depressed levels of imports, sales of two-wheelers and production of capital goods indicate a moderate recovery in domestic spending, ”Fitch said.
GDP forecast for fiscal year 21
Assuming that around 70% of the production lost in June 2020 is recovered in June 2021, Goldman Sachs set real GDP in the second quarter of 2020 at + 27.1% year-on-year and average annual GDP growth at CY21 and FY22 at 9.9% and 15.7%. percent, respectively.
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“While the economy should now emerge from a deeper depression in 2020, we have improved our expectations for a rebound next year. In the second quarter of 2021, we expect real GDP growth to pick up sharply year-over-year due to favorable base effects. Our forecasts assume that, in level terms, actual production in March 2022 would still be around 2% below its level in March 2020, ”wrote Prachi Mishra and Andrew Tilton of Goldman Sachs in a note dated 7 March. September.
For its part, India Ratings, a Fitch Group company, has also lowered its expectations for India’s economic growth in fiscal year 21 to -11.8% from -5.3% previously forecast. “The economic loss in fiscal year 21 is estimated at Rs 18.44 trillion. However, GDP is expected to rebound and grow at 9.9 percent year-on-year in fiscal year 22 mainly due to the weak base of fiscal year 21, ”said Devendra Pant, chief economist and senior director of Public Finance, India. Ratings & Research.
Global view
Fitch expects global GDP to fall 4.4 percent in 2020, a modest upward revision from the previously anticipated 4.6 percent drop. The recovery in economic activity after the unprecedented severe recession related to the coronavirus in March and April has been faster than expected, Fitch said, but they expect the pace of expansion to moderate soon.
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“China has already recovered its pre-virus GDP level and retail sales in the US, France and the UK are now above February levels, but we doubt this will turn into the much-hailed V-shaped recovery. Unemployment shocks are looming in Europe, companies are cutting capital expenditures and social distancing continues to directly limit private sector spending, “said Brian Coulton, chief economist at Fitch Ratings.
Chetan Ahya, Morgan Stanley’s chief economist and global chief economist, on the other hand, expects the global and developed market (DM) economies to reach their respective pre-Covid-19 levels early in the third quarter of fiscal year 21 ( Q3FY21).
“The rapid recovery since May means that the world economy will readjust faster than we initially expected. As the forces driving inflation higher continue to align, we now see a stronger case for our call that inflation will reappear in the DMs, particularly in the US, in a different way than the last three cycles. ” Ahya wrote in a September 7 co-report.
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