Fitch pegs FY-21 GDP growth at (-) 10.5 pc

India economy India GDP growth India economic growth India Coronavirus lockdown India lockdown Indian Express

"GDP shrank a staggering 24 per cent YoY (year-on-year) - nearly double our expectation embedded in the June GEO - amid the imposition of one of the most stringent global nationwide lockdowns", GEO added.

India Ratings' GDP growth forecast at -11.8 per cent will be the lowest GDP growth in India's history, data for which is available since financial year 1951.

After an initial prediction in its June outlook that global gross domestic product (GDP) will plunge by 4.6 percent this year, Fitch Ratings has revised its forecast slightly to 4.4 percent in a new outlook just released. The continued spread of the coronavirus and the sporadic closures across the nation depress sentiments and have disrupted economic activity. While Fitch Ratings cut its forecast for India's growth rate to (-) 10.5 per cent for FY21, India Ratings and Research slashed it to (-) 11.8 per cent, and investment bank Goldman Sachs cut the country's projected growth rate to 14.8 per cent for this fiscal.

While Fitch expects the economy to rebound strongly in Q2, India Ratings predicts contraction in all four quarters of FY21, expecting a rebound only in FY22.

They now believe that the economy will contract 13.7 percent for the September 2020 quarter and 9.8 percent for the December 2020 quarter, as against the 10.7 percent and 6.7 percent contractions, respectively, estimated earlier. "A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers", it added.

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"Limited fiscal support, fragilities in the financial system, and a continued rise in virus cases hamper a rapid normalisation in activity", Fitch said. The PMI balance has rebounded, but this implies that activity levels are still well below pre-pandemic levels in the third quarter of the 2020 (September quarter). Furthermore, high inflation has added strains to household income. "China has already regained its pre-virus GDP levels and retail sales in the US, France, and the United Kingdom now exceed February levels", Fitch wrote about global economic recovery. Private final consumption expenditure growth therefore is now estimated to clock negative 12.8 per cent, down from the earlier estimate of negative 5.1 per cent. "Still depressed levels of imports, two-wheeler sales and capital goods production indicate a muted recovery in domestic spending", the GEO said.

"India imposed one of the most stringent lockdowns worldwide in 2Q20 and domestic demand fell massively. However, we expect inflation to slow amid weak underlying demand, an easing in supply-chain disruptions and a good monsoon".

Fitch forecasts a considerable contraction in growth in Gulf countries by an average of 5.6 percent in 2020, down from 0.4 percent a year ago, as a result of both the pandemic and oil price shock. Of course, any such projection is closely tied to the country's progress in hadling the Covid-19 pandemic, its economists reckon.

India is now the world's second-worst coronavirus-hit country.

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