InvestorQ : Why are most of the global research houses downgrading India GDP growth for FY21?
Ria Jain made post

Why are most of the global research houses downgrading India GDP growth for FY21?

Dia Deshpande answered.
8 months ago

Yes, there has been a spate of downgrades by rating agencies and research houses. For example, a slew of agencies ranging from Fitch and Goldman Sachs to Nomura have sharply cut their estimates for growth in India’s gross domestic product for FY21.

Some of the numbers are really demoralizing. Fitch expects India GDP to contract 10.5% in FY21 versus its estimate of 5% contraction. Even Goldman Sachs has lowered its estimate for FY21 GDP to 14.8% from 11.8% earlier.

This has been a reaction to a sharp contraction in Indian economy in the Jun-20 quarter with the GDP contracting by a shocking -23.9%, marking the worst show in many decades. It has severely damaged household and corporate purchasing power and wealth.

However, there is some optimism in their voices. Fitch expects GDP to rebound strongly in the third quarter once the economy fully re-opens. Most of the raters and brokers are positive on the high frequency data in the form of IIP, core sector and PMI numbers.

Fitch has also put a number on the possible economic loss at around Rs.18.44 trillion. That is certainly a number that India cannot afford to carry. However, the GDP growth is expected to bounce back to 9.9% in FY22, but that is largely on a lower base.

The truth is that Fitch is not too positive about the global economy also and expects global GDP to fall 4.4% in 2020. The recovery is largely on account of China doing much better than expected. After all, China has already regained its pre-virus level of GDP growth.