Goldman sees recession in India as consumption takes severe hit

By Abhishek Vishnoi

India’s economy will likely contract in the first two quarters of the year as consumption plunges during a three-week lockdown to contain the coronavirus outbreak, according to Goldman Sachs Group Inc.

Gross domestic product is forecast to shrink an annualized 1.4% on a quarter-on-quarter basis in the first three months of the year and 3.8% in the second quarter, Goldman economists Prachi Mishra and Andrew Tilton wrote in a report. That will bring down growth in the fiscal year through March 2021 to 1.6% versus a previous estimate of 3.3%, they said.

The virus pandemic has brought “an unprecedented sudden stop” to activity in India, where consumption makes up 60% of the economy, the economists said.

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Goldman expects a strong sequential recovery in the second half of the fiscal year based on a staggered removal of the ongoing nationwide lockdown and further monetary and fiscal support.

Prime Minister Narendra Modi’s government has so far provided virus-relief stimulus of just 0.8% of GDP, while the central bank has cut interest rates by 75 basis points and has injected cash worth 3.2% of GDP since February.

“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,” the economists wrote.