High-frequency growth indicators are exhibiting broad-based declines across indicators on both the demand and the supply sides. However, the contraction in discretionary consumption and services has exceeded the slump in investment and industrial activity.
We expect real GDP
growth to contract 5 per cent y-o-y in 2020 and remain negative for three consecutive quarters. Our quarterly profile has growth faltering to 1.5 per cent y-o-y in Q1-2020 (January-March / Q4FY20), before contracting to 14.5 per cent in April-June, and then weakly recovering to -6 per cent in the July-September quarter and -1.5 per cent in the October-December 2020 period.
The two week lockdown in March is likely to have erased the gains of January and February. The March IIP contracted 16.7 per cent y-o-y, electricity consumption came in 25 per cent below normal, and the unemployment rate rose to above 24 per cent. Our India Growth Tracker (IGT) suggests that activity momentum in March contracted 50 per cent annualised in GDP
equivalent terms. For the quarter as a whole (January-March 2020), this point towards around 10 per cent annualised sequential contraction, and a 0 – 0.5 per cent y-o-y GDP growth.
Q4-FY20 growth rate would also be relevant when estimating the Q1-FY21 growth rate when economic activity had come to a virtual standstill in April and showed extremely limited momentum in May with the services sector being affected the most. We expect GDP growth in Q4 to be 3.6 per cent with the headline number coming down to 4.7 per cent for the entire year. Growth was 5.1 per cent for the first 9 months and would come down to 4.7 per cent by our estimates.
The DBS Momentum indicator points to a drop in Q1-20 (Q4FY20), underscoring our forecast for growth at 1.3 per cent y/y vs December 2019 quarter’s 4.7 per cent. The Reserve Bank of India (RBI) delivered an intermeeting cut last week, with the Governor noting that it was expected that full-year growth might be in negative. DBS 2020 current forecast at -3 per cent y/y is tilted towards our risk-case of -5.5 per cent as lockdown stands extended four times, ending on May 31, even as partial reopening is underway. This would mark the first recession since 1980.
Weaker-than-expected domestic economic activity and the ongoing global recession lead us to lower our estimates for FY21 real GDP growth, from -0.4 per cent YoY to -5.8 per cent YoY, indicating India could be moving towards its worst-ever recession. We now expect GDP to contract 40 per cent QoQ annualised in the June 2020 quarter on unprecedented weakness in economic data.