Economy

India Ratings revises FY21 GDP growth projection to -11.8%

September 08, 2020 17:16·

Early in the day, its global parent Fitch slashed GDP forecast for the current fiscal to -10.5 per cent, from earlier projection of -5 per cent. This was due to limited fiscal support, fragilities in the financial system, and a continued rise in virus cases that hindered an accelerated normalization in the activity.

Global rating and research houses, such as Fitch and Goldman Sachs, have cut their estimates for growth in India's gross domestic product (GDP) for the current fiscal 2020-21 (FY21).

"India Ratings' FY21 GDP growth forecast of negative 11.8 per cent will be the lowest GDP growth in Indian history (GDP data is available from FY-1951) and sixth instance of economic contraction, others being in FY-1958, FY-1966, FY-1967, FY-1973 and FY-1980", the rating agency said in a report.

Fitch now expects the global GDP to fall by 4.4% in 2020, less than 4.6% contraction it projected in June. "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.

Brazil, Russia and India now have some of the highest coronavirus caseloads in the world and Latin America currently accounts for more than 40 per cent of coronavirus fatalities. "GDP should rebound strongly in 3Q20 [third quarter] amid a re-opening of the economy, but there are signs that the recovery has been sluggish and uneven", the agency said.

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Fitch said official data have now revealed the extent of the economic dislocation in 2Q20 with world GDP falling by 8.9% year-on-year and many countries seeing falls in output of a fifth or more. The PMI balances have bounced back but they imply that the level of activity is still well below its pre-pandemic level in 3Q20. The rating agency also affirmed that India performed the worst in the second quarter among the G20 countries.

It said multiple challenges are holding back growth recovery, both in the short and medium term. The new cases of the COVID-19 continue to increase, forcing union territories and some states to tighten restrictions again, although these local containment measures are usually not as stringent as they were from March to April. "The continued spread of the virus and the imposition of sporadic shutdowns across the country depress sentiment and disrupt economic activity", Fitch said. The severe fall in activity has also damaged household and corporate incomes and balance sheets, amid limited fiscal support.

It further added that the previous lowest was (-) 5.2 per cent in FY80. However, we foresee inflation to moderate amid weak underlying demand, supply chain disruptions ease, and good monsoon.

The agency added that it expects India's GDP to rebound and grow at 9.9% year-on-year in the financial year 2021-'22 due to a weak base in 2020-'21. Bhandari believes: Although we predict that next year's GDP will achieve positive growth of 7.2%, GDP is likely to return to pre-pandemic levels in early 2022.

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