Investment bank Goldman Sachs said Tuesday that it expects the Indian economy to experience a deeper recession in fiscal year 21 with a 14.8% contraction from its previous estimate of an 11.8% drop in economic activity.
“In light of the second quarter GDP report (June quarter), we are making further significant adjustments to our GDP forecast for India. We now forecast the third quarter (September quarter) of 2020 and the fourth quarter (December quarter) of 2020 with GDP growth of -13.7% YoY and -9.8% YoY, respectively (compared to – 10.7% year-on-year and -6.7% year-on-year previously). Our estimates imply that real GDP falls 11.1% in calendar 2020 and 14.8% in FY21 (versus growth of -9.6% and -11.8% in our previous forecasts) ”The investment bank said in a research note.
India’s economy contracted 23.9% in the June quarter, the worst among the G20 countries and significantly below the expectations of most economists. The strict lockdown induced by the pandemic at the national level created a double whammy through a supply and demand shock, as companies closed their operations and consumers were forced to stay home.
However, Goldman Sachs improved its expectations for a rebound next year. “In the second quarter (June quarter) of 2021, we expect real GDP growth to pick up sharply year-over-year due to favorable base effects. Assuming ~ 70% of lost production in June 2020 is recovered in June 2021, we expect real GDP in Q2 2021 to be + 27.1% YoY. Going forward, assuming a step towards more normal levels of sequential growth, we now expect average annual GDP growth in CY21 and FY22 at 9.9% and 15.7% respectively (compared to 3.8% and 7.0% previously). Our forecasts assume that, in level terms, actual production in March 2022 would still be ~ 2% below its level in March 2020, “he added.
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