Goldman, Fitch slash India FY21 GDP estimate to worst in history

Pedestrians wearing protective masks walk across a road past motorists waiting at a traffic signal light in Shanghai China on Monday

Pedestrians wearing protective masks walk across a road past motorists waiting at a traffic signal light in Shanghai China on Monday

"GDP shrank a staggering 24% yoy [year on year] - nearly double our expectation embedded in the June GEO [Global Economic Outlook] - amid the imposition of one of the most stringent global nationwide lockdowns", the agency said in its Global Economic Outlook - September 2020.

In its September update of Global Economic Outlook (GEO), Fitch said, the deepest recessions were in India, the United Kingdom and Spain, countries that saw particularly large shocks in daily mobility data on visits to retail and recreation venues, and where lockdowns were stringent and long-lasting throughout 2Q20 (April-June).

Economists say India - the world's fastest-growing large economy until a few years ago - is headed for its first full-year contraction since 1980.

Domestic rating agency India Ratings and Research, meanwhile, revised India's GDP growth forecast for the financial year 2020-'21 to -11.8% from -5.3%.

Fitch projects India's GDP contraction at 9.6% in the September quarter, 4.8% in the December quarter and 4% in the January-March period this fiscal.

For the next fiscal, Fitch estimated Indian economy to grow 11 per cent, while for 2022-21 growth would be 6 per cent.

Assuming around 70 per cent of the lost output in June 2020 is recovered in June 2021, those at Goldman Sachs peg real GDP in Q2-2021 at +27.1 per cent YoY and average annual GDP growth in CY21 and FY22 at 9.9 per cent and 15.7 per cent, respectively.

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Coulton said Fitch now expects the USA economy to contract by 4.6% this year compared to a fall of 5.6% in the June GEO. Fitch's estimate for India was in contrast with its marginally improved projection for the global economy in 2020. The PMI balances have bounced back but they imply that the level of activity is still well below its pre-pandemic level in 3Q20.

Covid-19 infections are still rising, forcing some states and Union territories to reimpose restrictions, although these localised containment measures are generally less stringent than those imposed in March-April, Fitch said. It further added that depressed levels of imports, capital goods production, and two-wheeler sales are still in a doldrums state, indicating a weak recovery in domestic spending.

It further noted that the severe fall in activity has also damaged household and corporate incomes and balance sheets, amid limited fiscal support.

Furthermore, high inflation has added strains to household income and supply-chain disruption and excise duties increases have caused prices to rise.

Fitch Ratings said that the continued spread of the virus and imposition of sporadic shutdowns across the country has disrupted economic activity.

It said further fiscal policy easing announcements since June will help to offset the weakness in private demand but sees the recovery pace moderating from late-2020, such that the pre-virus level of GDP is not reached until 4Q21 in the USA and 4Q22 in the eurozone.

Chetan Ahya, chief economist and global head of economics at Morgan Stanley, on the other hand, expects the global and developed market (DM) economies to reach their respective pre-Covid-19 levels by early third quarter of FY21 (Q3FY21).

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