S&P Global Ratings on Friday said Indian Economy is in deep trouble with growth expected to contract by 5 per cent this fiscal.
"India's #economy is in deep trouble. Difficulties in containing the virus, an anemic policy response, and underlying vulnerabilities, especially across the financial sector, are leading us to expect growth to fall by 5 per cent this fiscal year before rebounding in 2021," S&P said in a report.
In its report titled 'Asia-Pacific losses near USD 3 trillion as balance sheet recession looms', S&P projected the region's economy to shrink by 1.3 per cent in 2020, but grow by 6.9 per cent in 2021. This implies a loss nearing USD 3 trillion output over these two years. "Asia-Pacific has shown some success in containing #COVID19 and, by and large, responded with effective macroeconomic policies," said Shaun Roache, chief economist for Asia-Pacific at S&P Global Ratings. "This can help cushion the blow and provide a bridge to the recovery. The recovery looks set to be weighed down by indebted balance sheets, however." One risk now looming larger is yet another "balance sheet recession" in which at least one important sector of the economy -- the #government, firms, or households -- tries to bolster its weak financial position by saving more, paying down debt, and spending less, S&P said. "The downturn caused by COVID-19 did not start as a balance-sheet recession but may end up as one," Roache said. "This means less investment, a slower recovery, and a permanent hit to the economy that will last even after a vaccine is found." The #pandemic caused a sudden stop in activity and to prevent a collapse, policymakers, helped by banks, have provided extraordinary financial support to firms and households. Banks may lend less than they normally would in a recovery to focus on the overhang from the pandemic. Private firms may prefer to stabilize debt rather than ramp up spending on new investments, even though demand is improving. The economy is healing but private sector confidence remains fragile. If private sector spending does not improve quickly, more stimulus may be unleashed, S&P said.
The International Monetary Fund (IMF) has projected a deeper 4.5% contraction for India in FY21 than earlier estimated, citing a longer #lockdown period and slower than anticipated recovery. In the June update – A Crisis Like No Other, An Uncertain Recovery – of its flagship World Economic Outlook (WEO), the IMF has forecast a –4.9% global growth in 2020, 1.9 percentage points below the April 2020 estimate. The #IMF had forecast a 1.9% growth for India in the April edition of the WEO and 3% contraction for the world.
“The Covid-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast,” the IMF said, adding there were significant downside risks and there was a higher-than-usual degree of uncertainty around its forecast. “India’s economy is projected to contract by 4.5% following a longer period of lockdown and slower recovery than anticipated in April,” the fund said. The latest assessment has also toned down the bounce back in FY22 to 6% against a stronger 7.4% growth forecast in April. In 2021, global growth is projected at 5.4%, marginally lower than 5.8% it expected in April.
Comments