Indian economy back on track in Q2; Morgan Stanley says GDP contraction narrows significantly

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November 20, 2020 1:14 PM

GDP may have contracted at a slower pace of 6 per cent on-year in Q2 FY21, compared to a 23.9 per cent fall in the previous quarter.

economic recovery, Q2 GDP, GDP growth, manufacturing, servicesConsumption and investments are expected to have improved, with exports positively contributing to growth. 

India’s economy has started to heal as is evident by a significant sequential improvement in high-frequency data such as PMI, rail freight, power demand, GST collections, and e-way bills.  The sectoral improvements have raised optimism for the economic growth in the fiscal’s second quarter. GDP may contract at a slower pace of 6 per cent on-year in Q2 FY21, compared to a 23.9 per cent fall in the previous quarter, said a report by Morgan Stanley. Further, consumption and investments are also expected to have improved, with exports positively contributing to growth, the report added.

While the industry and services growth remained robust in Q2, and the agriculture growth remained resilient due to favourable monsoon, the GVA is likely to pick up due to pent up demand. The government’s stimulus measures that aim at boosting manufacturing and creating jobs have led to optimism over the economic growth estimates for the full fiscal year.

Moody’s raises forecast, UBS bullish for next year

Earlier this week, Moody’s also revised up India’s GDP forecast for the current fiscal FY 2020-21 to a narrower contraction of 10.6 per cent, compared to an estimate of an 11.5 per cent contraction earlier. Moody’s said that the latest stimulus measures aim to increase the competitiveness of India’s manufacturing sector and create jobs while supporting infrastructure investment, credit availability, and stressed sectors. Another report by UBS showed that the Indian economy’s coil will grow at 10 per cent in 2021, after shrinking 10.5 per cent in 2020.

Also Read: Moody’s revises up India’s GDP growth forecast of FY21; says new stimulus measures to boost output, jobs

Upgrades galore for Indian economy

Besides, other organisations such as Goldman Sachs, Barclays, and ICRA have also raised India’s GDP forecast recently. ICRA projected the on-year contraction in Indian GDP to have narrowed to 9.5 per cent in Q2 FY21 from 23.9 per cent in Q1, as the economy recovered from the lows of the pandemic-induced lockdown. ICRA said that the contraction in manufacturing GVA may narrow considerably to around 10 per cent in Q2 from 39.3 per cent in Q1. Nevertheless, the extent of the recovery in the performance of the informal sectors in Q2 remains unclear, the rating agency added.

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