S&P improves India’s growth forecast, the economy will contract by 7.7% in the current fiscal balance

S&P Global Ratings raised India’s growth projections for the current financial year to (-) 7.7% from (-) 9% previously estimated on Tuesday due to rising demand and falling COVID-19 rates. For the next financial year 2021-22, S&P expected growth to rebound to 10%. The revised growth forecast for the current fiscal period reflects a faster-than-expected recovery in the September quarter.

“Rising demand and falling infection rates have mitigated our expectations COVID-19It affects the Indian economy. S&P Global Ratings revised real GDP growth to negative 7.7% for the year ending March 2021, from negative 9% previously, “S&P said in a statement. A faster recovery keeps more of the ‘supply of the economy and may set India for more sustained above-average growth during the recovery phase, he added.

India’s gross domestic product (GDP) fell by 7.5% in the July-September quarter, compared with a contraction of 23.9% in the April-June quarter. Earlier this month, Fitch Ratings also revised its growth forecast for India to (-) 9.4%, from (-) 10.5%, a sign of economic recovery, while the Asian Bank of development said the economy is expected to contract 8% from the previous forecast of a 9% contraction, with a faster recovery. Last month, Moody’s raised India’s growth forecast to (-) 10.6% for the current financial year, from its previous estimate of (-) 11.5%.

In the statement, S&P on Tuesday said India is learning to live with the virus, albeit the coronavirus the pandemic is far from defeated. However, reported cases have dropped by more than half from peak levels, to around 40,000 per day. “Unsurprisingly, India is following the path of most Asia-Pacific economies by experiencing a faster-than-expected recovery in manufacturing production,” said Shaun Roache, chief economist at S&P Global Ratings Asia-Pacific.

Manufacturing production was around 3.5% higher in October 2020 than the period a year ago, while the production of consumer durables increased by nearly 18%. “This recovery highlights one of the most surprising aspects of COVID-19 shock: the resilience of manufacturing supply chains. Again, as with demand, a slowdown in production dynamics has emerged more recently, “S&P said.

The agency said demand for goods, not services, drives India’s recovery and that household savings have increased due to uncertain prospects and constraints of social distancing. But the demand for durable goods is on the rise, he added. “If consumers can’t or don’t want to spend money on a vacation or dining out, they’ll direct some of that spending on goods,” S&P said.

He added that vehicle sales, both two-wheelers and cars, rebounded sharply from the low recorded in the first quarter of this fiscal year, although the momentum has eased slightly recently. “External demand for goods is also buoyant, driven by the global trade cycle, with particularly strong shipments to China.” He said the strength of this economic recovery is surprising, especially given the lukewarmness of the underlying policies. “We have long pointed out that the fiscal boost (the addition to domestic demand from higher spending and lower taxes) will only be around 1 percentage point of GDP this year.

“This contrasts with the strong fiscal responses of India’s emerging countries, which are four or five times larger,” S&P added. The Reserve Bank of India has also been careful to cut its benchmark rate, especially as higher inflation has pushed real rates to exceptionally low levels, he said.

S&P added that it continues to see some upside risks to our outlook, particularly for the 2021-22 financial year. “Launching vaccines for India’s huge population will be challenging. However, the goal of inoculating 300 million people by August 2021, combined with a high infection rate existing in some parts of the country, could mean a sharp decline. of cases reported in the near future.

“This would accelerate the transition to a new normal,” he said. Roache said the new predictions suggest that more small businesses can survive, and more workers can keep their jobs or find new ones. “The less intense and transient the effect of the pandemic on economic activity, the less permanent damage is.”

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