GDP estimates for Calendar Year 2020
Clearly, the estimates for the largest economies in the world do not look too encouraging. These estimates were made by The Economist in March 2020 and the situation has only become more acute that as the lockdown has been extended.
Early India GDP estimates are not too encouraging
As downgrades come in thick and fast, we look at India’s FY21 GDP estimates from 3 different stakeholders.
- Rating agency, Fitch, has recently downgraded the GDP growth for the fiscal year 2021 to just 0.8%. In recent months, Fitch has already downsized India’s GDP estimates several times citing lag effect of COVID-19.
- CII has been a little more generous in pegging India’s GDP estimates for FYF21 at 1.5%. However, CII has put in a caveat that even this growth would be hard to achieve without adequate government fiscal stimulus.
- Investment giant, Goldman Sachs, has recently pegged FY21 GDP at 1.6%, sharply lower than its original estimates of 3.3% for India. Goldman has estimated negative GDP growth in the June and September quarters, but a recovery after that.
In its analysis of the impact of the pandemic on key sectors, Goldman Sachs sees the maximum impact on the services sector. It expects 95% impact on sectors like restaurants, tourism, hotels and recreation services. Even education sector is likely to take a hit to the tune of 80% in the process. Consumption accounts for 60% of India’s GDP and slowdown in consumption alone is expected to shave off 1.2% from GDP. The spill over effect could be quite high but the good thing is that consumption of grocery and hygiene products continues to be robust during this period. Also, it is estimated that there could be a phased withdrawal of lockdown from May onwards; assuming COVID-19 numbers do not worsen.
Slow growth is better than no growth
It started off as disruption of supply chains but transformed into compression of discretionary spending in India. The IMF estimates the world economy to contract by (-3%) in 2020. This is likely to be driven by (-6.1%) contraction in Advanced Economies and (-1.1%) contraction in emerging market economies. But even the IMF expects two of the largest and most populous economies to show positive growth in 2020. China is expected to grow at +1.2% and India at +1.9%. Positive growth in GDP in India will be predicated on 3 factors.
- Strong combination of monetary stimulus and fiscal stimulus to compensate for massive losses during the lockdown
- Bringing back production and jobs to previous levels to avoid any structural damage to demand conditions in India
- Protecting the solvency of NBFCs in particular and the banking and financial system in general to avoid systemic risks