Indian Economy To Contract 5 Percent In FY21 – Fitch Ratings

Indian economy is to contract 5 per cent in the current fiscal on account of slump in economic activities following a “very severe” lockdown that has lasted much longer than expected, Fitch Ratings said in its latest forecast issued on Tuesday.

In its Global Economic Outlook (GEO) for May, Fitch projected growth to rebound to 9.5 per cent in 2021-22 and an estimated 3.9 per cent growth in 2019-20.

The forecast of 5 per cent contraction is sharp decline from 0.8 per cent growth projected by the global rating agency in late April. “The biggest contribution to the downward revision in global GDP for 2020 comes from EM (emerging markets) excluding China, where we now see GDP falling by 5 per cent in India and Russia and by 6-7 per cent in Brazil and Mexico,” Fitch said.

This reflects the surge in coronavirus infections from mid-April and measures taken to contain the outbreak, it added. “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,” the rating agency said.

It predicted two consecutive quarters of contraction or negative year-on-year growth in current fiscal: (-)2.7 per cent in April-June and (-)12.4 per cent in July-September. This compares to 1.2 per cent estimated growth in January-March. Fitch said the growth contraction in the current fiscal was mainly due to a 8.3 per cent and 9.7 per cent contraction in consumer spending and fixed investment in FY21.

While Fitch further cut world GDP forecasts in its latest Global Economic Outlook (GEO), but said that the slump in global economic activity is close to reaching its trough. “World GDP is now forecast to fall by 4.6 per cent in 2020 compared to a decline of 3.9 per cent predicted in our late-April GEO. This reflects downward revisions to the eurozone and the UK and, most significantly, to emerging markets (EM) excluding China”.

Fitch expects output in emerging markets, excluding China, to fall by 4.5 per cent this year compared to a predicted fall of 1.9 per cent before. This large revision reflects the deterioration in the health crisis in many of the largest EMs over the past month or so, including in Brazil, India and Russia, it said.

“The biggest forecast cut was to India where we now anticipate a 5 per cent decline in the current financial year (ending March 2021) in contrast to an earlier forecast of growth of 0.8 per cent. India has had a very stringent lockdown policy that has lasted a lot longer than initially expected and incoming economic activity data have been spectacularly weak,” Fitch said.

The agency has kept its forecasts for 2020 GDP growth for China, the US and Japan unchanged since late April at 0.7 per cent, (-)5.6 per cent and (-)5 per cent, respectively. “This concurs with other evidence that the collapse in global economic activity may be close to bottoming out. A number of early monthly economic indicators for May have improved slightly on their April values and daily mobility data show consumer visits to retail and recreation venues have increased in the eurozone and the US since lockdowns started to be eased in late April/early May,” Fitch said.