Fitch Estimates Indian Economy To Contract By 10.5 Percent In FY21

Fitch for the ongoing fiscal year 2020-21 hit by the pandemic has lowered its GDP forecast with economic growth expected to contract by 10.5% as against 5% earlier for the same period. This is even when the rating agency has marginally upped GDP rate for the global economy to be at a negative rate of 4.4% in comparison to 4.6% earlier.

Fitch Estimates Indian Economy To Contract By 10.5 Percent In FY21

This is as the GDP for India for the April-June quarter was severely impacted at -23.9%, its worst performance in as many as 4 decades.

"The severe fall in activity has damaged household and corporate incomes and balance sheets, amid limited fiscal support. A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers. Furthermore, high inflation has added strains to household income," Fitch said.

That said, the rating agency expects GDP in India to rebound strongly in the third quarter of calendar year 2020 (Q3-20) as the economy re-opens. However, it cautions that the recovery has been sluggish and uneven.

"The PMI balances have bounced back but they imply that the level of activity is still well below its pre-pandemic level in Q3-20. Still-depressed levels of imports, two-wheeler sales and capital goods production indicate a muted recovery in domestic spending," Fitch said.

This is as the coronavirus cases continue to surge forcing states and UTs to again impose restrictions "Supply-chain disruptions and excise duties increases have caused prices to rise. However, we expect inflation to slow amid weak underlying demand, an easing in supply-chain disruptions and a good monsoon," Fitch said.

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