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DBS sees double-digit contraction in Indian economy in Q1

Jul '20
Pic: Shutterstock
Pic: Shutterstock
India’s economy is likely to show a double-digit contraction in the April-June quarter due to the restriction on economic activities because of the COVID-19 pandemic, according to a recent report by Singapore-based banking company DBS, which said the country’s gross domestic product (GDP) grew by 3.1 per cent in the January-March quarter of 2020.

“Our in-house GDP Nowcasting model, which analyses an array of high frequency (monthly) indicators to make a call on the ongoing and coming quarters on a real time basis, confirms the double-digit contraction in 2Q20 (second quarter of 2020), before ascending to a smaller extent in 3Q20 (third quarter of 2020),” DBS said in a report.

The nature of this sudden stop owing to the pandemic will see real growth shift right to a lower trend, with part of the lost output unlikely to be made up for during the year, said Radhika Rao, economist at DBS Group Research.

In the second half of 2020, the tug-of-war between reopening the economy and still-to be arrested infection curve is likely to continue, the report said.

“Assuming cases peak within 3Q20 (third quarter of 2020), we maintain our expectations for growth to return to black by end FY21, with full year average growth at -4.8 per cent year-on-year,” Rao said.

Delay in containing the pandemic and concomitant delay in full reopen of the economy poses 1-1.5 per cent worth downside to the forecast, she said.

The report said the authorities in the country face the delicate act of balancing recovery needs whilst fire-fighting the pandemic.

It said unlock 2.0 phase is in effect, under which more activities will resume. Operations of domestic flights and trains will be expanded, places of worship, hotels and malls will stay open outside of containment zones, occupancy limits will be eased.

The impact of an extended lockdown is non-linear, to imply that longer the lockdown, exponential the economic drag, it said.

“Hence, even as the country tackles COVID-19 spread, gradual and guarded reopening is likely to continue, also necessitated by the dominance of an informal economy,” the report said.

The central bank and government have undertaken measures to limit the extent of deceleration during the lockdown, it said.

“We continue to expect further support in 2H (second half of) FY21 when the sectoral pain points, especially financial sector and those exposed to consumer discretionary spending, become apparent,” the report said.

Fibre2Fashion News Desk (DS)

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