Unparalleled economic blow: India GDP may shrink 25.5% in Q1; revival unlikely until third quarter

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August 25, 2020 12:04 PM

India’s April-June quarter GDP data on 31 August is likely to confirm that Covid-19 containment measures have dealt an unprecedented blow to the economy.

economic activity, GDP growth, Q1 GDP, economic revival, GDP, indian economyThe rural economy, government spending, and essentials will likely be the only sectors mitigating some of the contractions.

India’s GDP in the first quarter of this fiscal may shrink as much as 25.5 per cent on the back of a major economic disruption led by the coronavirus pandemic. India’s April-June quarter GDP data on 31 August is likely to confirm that Covid-19 containment measures have dealt an unprecedented blow to the economy, with almost all economic activity grinding to a halt as the country went into a stringent lockdown, said a report by Barclays. It added that the rural economy, government spending, and essentials will likely be the only sectors mitigating some of the contractions.

Even as the country comes out of the nationwide lockdown in the month of June and some indicators like power and fuel consumption, and freight started to show slow and steady normalisation, Barclays report suggested that the growth is unlikely to return until the December-quarter. Also, the growth in government consumption amid the pandemic is unlikely to cushion a near washout in almost all other expenditure segments.

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Though April and May were the worst months on the economic front, the rising coronavirus caseload and the consequent local lockdowns have led the improving indicators to stall once again. This has raised concern that the bounce in the activity could be relatively short-lived, and at risk of reversal.

Given the uncertainty mounting over the businesses and industry, Barclays has downgraded the GDP forecasts for the December quarter to a contraction of 8 per cent and a contraction of 6 per cent in the full fiscal. Meanwhile, on the sectoral basis, it is estimated that construction will contract by 48 per cent, trade and commerce will contract by 40 per cent, manufacturing by 45 per cent and financial services will contract by 20 per cent in the first quarter. However, the availability of coronavirus vaccine and the trend of caseload will determine the economic situation in the later part of the year.

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