Indian economy to contract 10.5% in 2020-’21, predicts Fitch Ratings
In May, the credit rating agency had estimated a 5% contraction in the economy.
American credit rating agency Fitch Ratings on Tuesday sharply lowered its growth forecast for India, saying that the country’s Gross Domestic Product for the financial year 2020-’21 is expected to contract by 10.5%, instead of its earlier estimate of a 5% contraction.
The agency, however, forecast that India’s economy will grow by 11% in the financial year 2021-’22 and 6% in 2022-’23.
The bleak growth forecast for India came over a week after government data showed that the country’s GDP growth rate contracted by 23.9% for the April to June quarter due to the escalating coronavirus crisis.
“India recorded one of the sharpest GDP contractions in the world in 2Q20 (1Q of the 2020 fiscal year). GDP shrank a staggering 24% yoy [year-on-year] – almost 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. “All demand components except government consumption fell massively in the quarter. Private consumption lost more than 27% qoq [quarter on quarter], investment slumped an eye-watering 43% qoq.”
The agency added that it expected India’s GDP to rebound in the third quarter of the current financial year but warned that signs of uptick have been slow. “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.
It added: “The PMI [Purchasing Managers’ Index] balances have bounced back but they imply that the level of activity is still well below its pre-pandemic level in 3Q20. Still-depressed levels of imports, two-wheeler sales and capital goods production indicate a muted recovery in domestic spending.”
The agency also listed the challenges to India’s economic recovery. “New cases of the coronavirus continue to increase, forcing some states and union territories to re-tighten restrictions, though these localised containment measures are generally less stringent than in March-April,” the agency said. “The continued spread of the virus and the imposition of sporadic shutdowns across the country depress sentiment and disrupt economic activity.
Fitch Ratings added that corporate and household incomes were been severely-hit due to the pandemic with limited fiscal support. “A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers,” the statement read. “Furthermore, high inflation has added strains to household income. Supply-chain disruptions and excise duties increases have caused prices to rise.”
The agency added that it expected inflation to slow down amid “weak underlying demand”, an ease on the disruptions in the supply chain and a good monsoon season. Global GDP is expected to fall by 4.4% in 2020-’21, a slight upward revision from its previous forecast of a 4.6% decline, it said.
India Ratings projection
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%.
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. The agency, however, warned that all economic indicators, including mobility and consumption, were pointing towards weaker economic recovery.
India is now the world’s second-worst coronavirus-hit country. It has reported 42,80,422 lakh cases and 72,775 deaths so far. The government is aiming to open up more sectors in “Unlock 4”, the latest phase of the lifting of coronavirus related restrictions, to bring the damaged economy back on track.
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