Economy

Goldman Sachs cuts India GDP estimate to 1.6%

Our Bureau Mumbai | Updated on April 08, 2020

Goldman Sachs has made the steepest revision to its forecast of India’s GDP for financial year 2021 to 1.6 per cent from 3.3 percent previously. The GDP of India would be slower than what India experienced in 1970s, 1980s and 2009, all the years when economy contracted significantly, Goldman Sachs said.

The global research house has cut global GDP growth to negative -1.8 per cent, which is a sharp over 5 per cent downward revision since its estimates made in the the beginning of the year.

“The 1.6 per cent growth for FY21 would be deeper compared to widely perceived “recessions” India experienced in the 1970s, 1980s, and in 2009. Notably, as our global team has argued, the global COVID-19 crisis — or more precisely, the response to that crisis — represents a physical (as opposed to purely financial) constraint on economic activity that is unprecedented in postwar history,” Goldman said.

After a nationwide lockdown was imposed on March 25 to stop the spread of Covid-19 virus, economic activity mainly India’s import, export came to a virtual standstill.

Prior to the lockdown domestic stock market benchmark indices Sensex and Nifty crashed by more than 20 per cent in March alone. The fall was so sharp market regulator SEBI had to impose restrictions on naked short selling in the equity derivatives segment. The World Bank, however, has said that India will not see recession due to strong domestic demand.

“In India, the spread of the virus, announcements of a nationwide shutdown from March 25, social distancing measures, and fears among consumers and businesses, have all escalated sharply over the past two weeks. High frequency data, as well as anecdotal evidence, although still limited, suggest a significant contraction in economic activity,” Goldman said.

“In India, the spread of the virus, announcements of a nationwide shutdown from March 25, social distancing measures, and fears among consumers and businesses, have all escalated sharply over the past two weeks. High frequency data, as well as anecdotal evidence, although still limited, suggest a significant contraction in economic activity,” the research note added.

 

Goldman Sachs said that over the past two weeks, their global team was forecasting the world to be in a recession in 2020, with risks remaining on the downside.

“We have downgraded our global GDP forecast to -1.8 per cent in 2020, more than 5 per cent point downward revision since early this year, and a roughly 3 per cent point downward revision since our last published India growth forecast update on March 22. For the United States, we have downgraded our growth forecast to -6.2% in 2020 (from -3.7 per cent earlier.”

We continue to expect a strong sequential recovery in the second half of the fiscal year, based on three assumptions. First, the 3-week nationwide lockdown, which is expected to be removed only in a staggered fashion, and social distancing measures reduce new infections over the next 4-6 weeks. Second, while the fiscal easing so far has been limited, our expectation is for further fiscal stimulus by the center and the states. Third, we expect the RBI to continue with its monetary easing policy, along with liquidity infusion measures. While more forceful policy support could present some upside risk, the recovery could further be delayed if the pandemic is not brought under control globally and domestically over the next few months.

Published on April 08, 2020

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like