Inflation | Economists upgrade GDP forecasts after Q2 surprise
Independent economists and experts have bumped up their gross domestic product (GDP) estimates for the year ending March following lower-than-expected contraction in the September quarter. The decline in FY21 GDP is expected to be less than the double-digit shrinkage forecast earlier. Covid is a significant threat but vaccine prospects have buoyed sentiment, they said.
Nomura raised its FY21 growth estimate to an 8.2% contraction from a 10.8% decline seen earlier “to reflect the Q3 (Q2FY21) outturn and faster normalisation so far in Q4 (Q3FY21),” economists Sonal Varma and Aurodeep Nandi said in a note.
According to data released by the National Statistical Office on Friday, India’s GDP shrank 7.5% against a median expectation of 10.2% contraction in an ET poll of economists conducted a week before. Nomura cited the quarter-on-quarter improvement.
“On a seasonally adjusted basis, we estimate that GDP rose an impressive ~21.4% q-o-q, almost reversing the -25% fall in Q2 (Q1FY21),” it said.
CARE Ratings said it now expects the country’s GDP to contract 7.7-7.9% in the ongoing fiscal against the -8.2% it had estimated earlier.
RBI Expected to Revise Estimate
“The revision is based on the fact that two sectors which we thought were going to perform negatively, that is manufacturing and electricity, were actually positive,” said Madan Sabnavis, chief economist at CARE Ratings.
CARE also expects a lower contraction of about 2% in the third quarter followed by positive growth in the March quarter based on Index of Industrial Production and corporate profitability trends.
ICRA principal economist Aditi Nayar said, “At present, it appears that the GDP contraction in FY2021 is likely to range between 7-9%, milder than our previous forecasts (-11%), unless rising Covid-19 infections force fresh restrictions.”
Brickwork Ratings revised its FY21 GDP forecast to -7% from -9.5% to account for the second-quarter number, which was lower than the 13.5% contraction it had estimated, said the firm’s chief economic adviser, M Govinda Rao.
While State Bank of India (SBI) Research has not firmed up its estimates yet, group chief economist Soumya Kanti Ghosh said FY21 GDP contraction will definitely be in the single digits, a moderation from the -10.9% it had projected earlier.
According to an SBI Research report on Friday, the “most astonishing” number in the official Q2 print was in manufacturing, which showed 0.6% growth compared with 39.3% contraction in the preceding quarter, adding that the remaining quarters of the fiscal are likely to see positive growth.
Economists also expect the Reserve Bank of India (RBI) to revise its estimate of a 9.5% contraction for the current fiscal year at the monetary policy review this week. The central bank had projected second-quarter contraction at 8.6%.
Recently, Moody’s Investor Service raised its FY21 GDP forecast to -10.6% from -11.5% while investment bank Goldman Sachs revised its projection to -10.3% from -14.8% earlier. These revisions came before the September quarter numbers were announced.
Against its previous forecast of 8.3% contraction in FY21, HDFC Bank now sees a 7.5% decline, it said in a report on Saturday, adding that a “rise in domestic infection cases and imposition of lockdown restrictions in various states could weigh on consumer demand in the coming months.”
IDFC First Bank chief economist Indranil Pan said the V-shaped recovery in the second quarter was mainly due to the lifting of lockdown restrictions. However, the marginal change in its FY21 GDP projection to -8.4% from -8.7% earlier reflected the caution with which the bank views improvements in leading indicators, Pan said.
The prospect of a Covid-19 vaccine rollout next month have also lifted sentiment as the impact of the government’s fiscal stimulus measures begin to trickle down into the economy, said QuantEco Research economist Vivek Kumar.
The research firm marked up its FY21 forecast to -8.3% from -9.5% earlier.
“Manufacturing is by and large out of the lockdown mode. As unlock gains further momentum, service sector activity would start to catch up,” Kumar said.
( Originally published on Nov 30, 2020 )