Barclays has cut its growth forecast for India to zero per cent for Calendar Year (CY) 2020 from 2.5 per cent earlier as the country heads into a longer complete shutdown (until May 3) to combat the rising number of Covid-19 cases.
It has estimated the economic loss of the lockdown to be close to $234.4 billion than the previous estimate of $120 billion.
Barclays Research, which is produced by the Investment Bank of Barclays Bank PLC and its affiliates, in a report, said the economic impact of Covid-19 looks set to be worse than it had expected earlier.
“While we expect inventory rebuilding and some release of pent-up consumption to boost demand in June and Q3 (July-September) 2020, we think this effect is likely to be mild on account of precautionary savings, weak global demand and large job losses.
“As such, the downward trajectory of the economy is likely to be deeper than we had expected. Hence, we cut our growth forecast to 0.0 per cent for CY2020 (from 2.5 per cent) and to 0.8 per cent for FY20-21 (from 3.5 per cent),” said Rahul Bajoria of Barclays Securities (India) Pvt Ltd.and Shreya Sodhani of Barclays Bank, Singapore, in a report..
For CY2021, Barclays Research Department has lowered its GDP growth forecast to 7.5 per cent (from 8 per cent).
While India’s Covid-19 outbreak has not officially reached the community transmission stage, Barclays believes the existing restrictions on movement are causing much more economic damage than anticipated.
“In particular, despite being characterised as essential sectors, the negative impact of the shutdown measures on the mining, agriculture, manufacturing and utility sectors appears higher than we had expected,” the authors of the report said.
Bigger loss anticipated
Further, combined with the disruption in several service sectors, Barclay’s Research now estimates that the economic loss will be close to $234.4 billion (8.1 per cent of GDP), assuming that India will remain under a partial lockdown at least until the end of May. This is much higher than the $120 billion it had estimated earlier for roughly the same time period.
“Once the lockdown is over, we think the pace of recovery will be contingent on policy support. Our trajectory of a slower recovery factors in the only modest fiscal stimulus unveiled by the government up to now.
“We think this is unlikely to offset the negative impact on ‘animal spirits’ caused by relative inactivity for a long period,” the authors said.
Major policy interventions, if taken, could, however, change the outcome and bring about a faster upswing after the lockdown opens. That said, the slowdown in early Q2 (April-June) will be driven entirely by the shutdown and is unlikely to be impacted by policy support.