Indian economy to shrink 5% this year

On a day when the World Bank painted a grim picture of the world economy saying that coronavirus will cause global economic output to contract by 5.2% in 2020, India’s growth figures were also downsized considerably.

S&P Global Ratings had said the Indian economy will shrink 5 per cent in the current fiscal, and that the fiscal stimulus worth 1.2 per cent of the GDP will not be enough to provide significant growth support.

In a report on emerging markets titled ‘Financial Conditions Reflect Optimism, Lockdown Fatigue Emerges’, S&P said the services sectors, which are large employers, have been severely affected, leading to widespread job losses.

“Migrant workers have been geographically displaced, and we expect it will take some time to unwind this process. There will be supply chain disruptions over the transition period,” S&P said.

The rating agency forecast Indian economy to shrink by 5 per cent in the current fiscal and said growth will rebound to 8.5 per cent in 2021-22. It projected growth to be 6.5 per cent in 2022-23.

India’s GDP growth slumped to a 11-year low of 4.2 per cent in 2019-20.

Rating agencies Fitch and Crisil too had projected a 5 per cent contraction of Indian economy, while Moody’s forecast economy to shrink by 4 per cent. World Bank too estimates Indian economy to contract 3.2 per cent in 2020-21.

The government had last month announced a Rs 20.97 lakh crore economic package, which include liquidity support from the RBI.

In its latest Global Economic Prospects report, the World Bank said that advanced economies are expected to shrink 7.0% in 2020, while emerging market economies will contract 2.5%, their first since aggregate data became available in 1960. On a percapita GDP basis, the global contraction will be the deepest since 1945-46 as World War Two spending dried up.

The report showed 2020 contractions of 6.1% for the US and Japan, a 9.1% contraction for the euro zone, 8% for Brazil and 3.2% for India. China is expected to maintain growth of 1.0% in 2020, down from a January forecast of 6.0%. 

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