India May See First Contraction in 40 Years on Lockdown Extension
Longer lockdown will result in a direct output loss of more than 8% for India.
(Bloomberg) --
India’s economy may be heading for its first full-year contraction in more than four decades after Prime Minister Narendra Modi extended the world’s biggest lockdown to contain the coronavirus outbreak.
The lengthening of the mandatory stay-at-home period to 40 days from 21 days will result in a direct output loss of more than 8% over that time, according to Sonal Varma of Nomura Holdings Inc.
Varma and Kunal Kundu of Societe Generale GSC Pvt. now predict a decline in gross domestic product for the year to March 2021 of 0.4% and 0.1% respectively. The economy had last contracted in 1980, when GDP shrank 5.2%.
“There will be indirect effects such as the persistence of the public fear factor even after the lockdown ends,” said Varma, head of Asia economics ex-Japan at Nomura. Besides, there will be an “impact on livelihoods of the unorganized workforce, and a sharp increase in corporate and banking sector stress, which are likely to further weigh on growth.”
The index of consumer sentiment plummeted to its lowest level since 2015, immediately after the nationwide lockdown was announced by the government on March 24, according to a report by researcher Center for Monitoring Indian Economy Pvt. The index, which has a base of 100, plunged to 52 by March 29, a 47% fall in a single week, showing drastic impact on household sentiment. The index stood at 102.5 in the first week of March.
“This extremely bleak view of the future makes the task of an economic revival after the lifting of the lockdown particularly challenging,” Mahesh Vyas, managing director of CMIE, said in the report. “Data suggests that the economic cost of the lockdown is huge. Incomes of nearly half the households have shrunk and most of them do not have hopes of a revival.”
What Bloomberg’s Economists Say
“A precipitous recession in India is inevitable.”
“We are slashing our fiscal 2021 GDP forecast to a contraction of 4.7%, down 10.7 percentage points from 6% growth we expected before the coronavirus sideswiped the economy.”
-- Abhishek Gupta, India economist
For the full report, click here
Here are some more comments from other economists:
Aditi Nayar, principal economist, ICRA Ltd.
- Sees GDP contracting in a range of 10%-15% in the first quarter, “which would translate to a bleak full year growth band of +/-1%.”
Teresa John, economist, Nirmal Bang Institutional Equities
- Says the lockdown could shave off just under 6% of India’s GDP, while cutting her growth forecast to 0.5%. “Moreover, an extended lockdown will also prolong the time for economic recovery.”
Rahul Bajoria, senior economist, Barclays Bank Plc
- Combined with the disruption in several service sectors, he estimates economic loss will be close to 8.1% of GDP and is forecasting the economy to grow 0.8% this year. “However, if we are still seeing localized Covid outbreaks, which lead to frequent shutdowns, the scope for the economy to recover will continue to decline.”
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