Goldman Sachs Makes Sharp Cut In India's GDP Projection For FY21 To 1.6%

In a recent note, Goldman Sachs revised its projection for India's growth for the second time in less than a month and made a steep revision financial year 2020-21 to 1.6 percent from the earlier 3.3 percent estimate.

The investment bank has also cut its forecast for global GDP (gross domestic product) growth to negative -1.8 percent, a sharp downward revision of over 5 percent from its estimates at the start of the year.

"The 1.6 percent growth for FY21 would be deeper compared to widely perceived "recessions" India experienced in the 1970s, 1980s, and in 2009. Notably, as our global team has argued, the global COVID-19 crisis - or more precisely, the response to that crisis - represents a physical (as opposed to purely financial) constraint on economic activity that is unprecedented in postwar history," Goldman said.

Due to the 21-day nationwide lockdown that was imposed on 25 March to curb the spread of COVID-19 virus, economic activity mainly India's import, export have virtually stopped.

"In India, the spread of the virus, announcements of a nationwide shutdown from March 25, social distancing measures, and fears among consumers and businesses, have all escalated sharply over the past two weeks. High frequency data, as well as anecdotal evidence, although still limited, suggest a significant contraction in economic activity," Goldman said.

Goldman Sachs said that over the past two weeks, their global team was forecasting the world to be in a recession in 2020, with risks remaining on the downside.

For the United States, it has downgraded the growth forecast to -6.2 percent in 2020, from -3.7 percent earlier.The American investment bank expects a strong sequential recovery in the second half of the fiscal year on three assumptions. 1) New infections are reduced over the next 4-6 weeks from lockdown and social distancing measures, 2) Further financial stimulus from the center and the states 3) RBI continues to ease its monetary easing policy, along with liquidity infusion measures.

"While more forceful policy support could present some upside risk, the recovery could further be delayed if the pandemic is not brought under control globally and domestically over the next few months," it said.