American credit rating agency Fitch Ratings on Tuesday forecast that the Indian economy will contract by 5% in the current financial year of 2020-’21 because of the magnitude of the lockdown-related shock to global activity during the coronavirus pandemic. This is a sharp decline from the growth forecast of 0.8% by the global rating agency in late April – a revision from the 2% that was projected just three weeks ago at the time.

In its Global Economic Outlook, the ratings agency projected growth to rebound to 9.5% in 2021-’22.

“The biggest contribution to the downward revision in global GDP for 2020 comes from EM [emerging markets], excluding China, where we now see the Gross Domestic Product falling by 5% in India and Russia, and by 6% to 7% in Brazil and Mexico,” it said. “The biggest revision by far has been for India, where the virus outbreak has prompted a very severe lockdown that has lasted much longer than expected.”

India on May 17 extended its nearly two-month-long lockdown until the end of the month while easing restrictions in certain sectors to boost economic activity.

The ratings agency predicted two consecutive quarters of contraction or negative year-on-year growth – by 2.7% in April to June and by 12.4% in July to September – in the current financial year. “India has had a very stringent lockdown policy...and incoming economic activity data have been spectacularly weak,” the ratings agency added. The growth contraction was mainly because of the slump in consumer spending, which fell by 8.3% and in fixed investment which went down by 9.7%.

Similar observations were made on May 18 by the United States-based multinational investment bank Goldman Sachs, which predicted that the Indian economy will experience the worst recession ever after its already weakened state was further dragged down by the countrywide lockdown. The bank said the deeper trough in the forecast reflected the “extremely poor data” it had received for the month of March and April and the continued lockdown measures, which are among the most stringent across the world.

In the Global Economic Outlook for May, Fitch Ratings also cut world Gross Domestic Product forecasts, but said the slump in global economic activity is close to reaching its trough. “World GDP is now forecast to fall by 4.6% in 2020 compared to a decline of 3.9% predicted in our late-April GEO,” Brian Coulton, the agency’s chief economist added. “This reflects downward revisions to the eurozone and the United Kingdom and, most significantly, to emerging markets excluding China.”