June 13, 2024


Delighting finance buffs

India’s GDP to contract by 45{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} in June quarter, predicts Goldman Sachs

The government’s effort to provide a boost to the coronavirus-hit economy focuses on more on the medium-term rather than offering immediate support, according to a recent note by Goldman Sachs economists.

In a May 17 note, Goldman Sachs economists Prachi Mishra and Andrew Tilton predicted that India’s Gross Domestic Product (GDP) will contract by an annualised 45 per cent in the second quarter from prior three months or the June quarter.

This is almost double of what the global investment banker had predicted in its earlier forecast for the same period — a 20 per cent slump.

Brace for deepest recession

In the note, the researches expect a stronger sequential rebound of 20 per cent in the third quarter of the year, but they fear that India’s real GDP will fall by 5 per cent in this fiscal, which is a major blow to the country’s economy.

The fact that the lockdown has been extended to May 31, albeit some relaxations, means many sectors including the all-important aviation sector will not be able to resume operations. The broader travel and tourism industry continues to bleed as well.

While Goldman economists have not changed their projections for the fourth quarter of FY21(14{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58}) and the first quarter of next year (6.5{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58}), they said that the stimulus announced by the government to deal with the crisis may not be enough to prevent a slow recovery.

The government had announced a Rs 20 lakh crore coronavirus relief package for affected businesses and citizens, but the economists explained that it lacks immediate support.

“There have been a series of structural reform announcements across several sectors over the past few days,” Prachi Mishra and Andrew Tilton wrote.

“These reforms are more medium-term in nature, and we, therefore, do not expect these to have an immediate impact on reviving growth. We will continue to monitor their implementation to gauge their effect on the medium-term outlook.”

The economists also mentioned in their note that India’s targeted policy support is “tepid” compared to packages announced by other emerging economies.

They said all the fresh prediction has been based after factoring in all conditions like the extension of the lockdown, workforce constraints and more.

The Goldman Sachs economists also advised the government to offer “discretionary fiscal policy support” for minimising any further impact of the pandemic on businesses.

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