Barclays revises GDP forecast to -6.4%

Our Bureau Mumbai | Updated on November 19, 2020

Raises FY22 growth forecast to 8.5% to reflect faster recovery

Barclays has modestly revised its FY21 GDP forecast downwards to -6.4 per cent from -6 per cent earlier, to reflect the marginally weaker incoming data than it had earlier anticipated.

This forecast is still materially above the Reserve Bank of India’s (RBI) forecast of -9.5 per cent, according to Rahul Bajoria, Chief India Economist, Barclays Securities (India) Pvt Ltd, and Shreya Sodhani,Global Research Analyst, Barclays Investment Bank.

However, Barclays has raised its FY22 growth forecast to 8.5 per cent from 7 per cent to reflect a faster recovery in services amid continued policy support.

“India’s economy is seeing a faster return to normal, with the Covid-19 curve flattening. A possible vaccine rollout from Q1 FY21 should broaden the recovery from farm and manufacturing to services,” said Bajoria and Sodhani in the report.

“We expect the recent improvement in manufacturing to broaden to the services sector early next year. We now see a better trajectory for the recovery of consumption as well as investment, given incrementally rising fiscal and monetary support,” they added.

CY20 contraction at 7.1%

On a calendar year basis, Barclays has now estimated a 7.1 per cent contraction in GDP in 2020 (previously: -6.5 per cent), followed by a stronger bounce in 2021 to 8.9 per cent growth, from 7.1 per cent previously.

This is below the RBI’s expectations, but the much shallower base under Barclays 2020 forecast makes its 2021 bounce larger.

GDP growth to resume in Q4 CY20

Barclays has forecast that growth in GDP will resume in Q4 CY20 (October-December), a quarter ahead of the RBI’s projections.

“Assumptions supporting our more optimistic view of 2021 include no national lockdown, even if there is a resurgence in Covid cases, a vaccine is finalised and starts being distributed sometime in H1 (January-June) 2021, and monetary/fiscal support remains broadly intact through the year,” the report said.

Barclays has forecast that GDP will decline by 8.5 per cent year-on-year (y-o-y) in Q2 (July-September) FY21 (previous: -8.0 per cent y-o-y), and expects the economy to grow by 0.4 per cent in Q3 (October-December) FY21 (previous estimate: 2.1 per cent y-o-y).

“The modest downward revisions incorporate incoming data and the cycle of inventories across a variety of sectors, but broadly maintain the recovery cycle we had anticipated in August 2020,” the report said.

Published on November 19, 2020

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