Fitch Projects India’s GDP to contract by 10.5%, Goldman Sachs by 14.8%

Major credit rating agencies revise GDP forecasts amid the raging pandemic. Fitch ratings project India’s GDP to contract by 10.5%, Goldman Sachs by 14.8%.

Reductions in GDP Forecasts

Fitch Ratings, in the Global Economic Outlook (GEO), has cut India’s GDP growth projection to negative 10.8% from an earlier forecast of negative 5%. Data released by the credit rating agency last week revealed that India’s GDP contracted by 23.9% during April-June 2020 quarter. On the other hand, American brokerage Goldman Sachs slashed India’s GDP contraction to 14.8%. It is the most pessimistic estimates from all other projections. Also, India Ratings and Research revised India’s GDP growth projection to (-) 11.8% from (-) 5.3%. At the same time, economists at SBI see a contraction of 10.8% in FY21.

Limited Fiscal Support and Financial Fragilities Made India the Worst-Hit Economy

The GEO of Fitch ratings said that the two-month stringent lockdown imposed in India dropped demand massively. Besides, limited fiscal support and fragilities in the financial system obstructed the normalization in the economic activities. Similarly, Goldman Sachs noted that India’s GDP had been the worst-hit across the major economies. Further, it revised its projection for GDP growth contraction to 13.7% for the September quarter and 9.8% for the December quarter from an earlier estimate of 10.7% and 6.7%, respectively.

Rebound Possible in Next Year

Domestic rating agency India Ratings released an estimate of growth of India’s GDP at 9.9% year-on-year in FY22. The report said that projection of GDP contraction of 11.8% is the lowest in the history of the Indian economy. Further, it estimated an economic loss of Rs 18.44 lakh crore in FY21. The previous lowest was negative at 5.2% in FY80. Also, Goldman Sachs expects the Indian economy to see a sharp recovery of 15.7% in the next fiscal. Further, they expect real GDP growth of 27.1% in the April-June 2021 quarter based on the assumption of recovery of 70% of the output lost in June 2020 in June 2021.

In all, the shrink in GDP growth projections has come amidst the contraction in activities across all sectors except for agriculture by the pandemic.

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