Goldman Sachs projects deeper recession for India in FY21

1 min read . 05:17 PM ISTAsit Ranjan Mishra

• India’s economy contracted 23.9% in June quarter, worst among the G20 countries and significantly below expectation of most economists

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Investment bank Goldman Sachs on Tuesday said it expects Indian economy to undergo a deeper recession in FY21 with a contraction of 14.8% against its earlier estimate of 11.8% dip in economic activity.

“In light of the Q2 (June quarter) GDP report, we are making further significant adjustments to our GDP forecasts for India. We now forecast Q3 (September quarter) 2020, and Q4 (December quarter) 2020 at GDP growth of -13.7% yoy and -9.8% yoy, respectively (compared to -10.7% yoy and -6.7% yoy previously). Our estimates imply that real GDP falls by 11.1% in calendar year 2020, and by 14.8% in FY21 (vs growth of -9.6%, and -11.8% in our previous forecasts)," the investment bank said in a research note.

India’s economy contracted 23.9% in June quarter, worst among the G20 countries and significantly below expectation of most economists. The stringent nationwide pandemic-induced lockdown created a double whammy through both a supply and demand shock as businesses shut down operations and consumers were forced to stay home.

However, Goldman Sachs upgraded its expectations of a rebound next year. “In Q2 (June quarter) 2021, we expect real GDP growth to bounce back sharply on a year-over-year basis due to favorable base effects. Assuming ~70% of the lost output in June 2020 is recovered in June 2021, we expect real GDP in Q2 2021 at +27.1% yoy. Going forward, assuming a step down to more normal levels of sequential growth, we now expect average annual GDP growth in CY21 and FY22 at 9.9% and 15.7% respectively (relative to 3.8% and 7.0% before). Our forecasts assume that in level terms, real output in March 2022 would still be ~2% below its level in March 2020," it added