The Indian economy may contract16.5 % in Q1FY21, as against previously expected contraction of 20%
Published On: Monday, August 17, 2020 | By: Team KnowMyStock
There is a small Silverline for the Indian economy. It may report a contraction of16.5 percent in April-June quarter of FY21, as against a previously expected contraction of 20 percent, as degrowth in corporate GVA, courtesy better-than-expected results of some financial and non-financial companies have been significantly better than revenue degrowth in Q1FY21, said economists at SBI. "In May, we had indicated that the Q1FY21 GDP growth will exhibit a sharp decline at least in excess of 30 percent. However, the current situation warrants us to revisit our GDP growth... In principle, the revenue decline of listed companies has been far outstripped by cost rationalisation thereby not impacting margins. As per our estimates, Q1FY21 real GDP degrowth would be now around –16.5 percent," Soumya Kanti Ghosh, chief economic advisor for SBI wrote in his latest report Ecowrap, dated August 17. The government is expected to release Q1FY21 GDP data on August 31.
Based on the composite leading indicator (CLI), which is a basket of 41 leading economic indicators, chief economic advisor for SBI deduces that the economic activity is showing early signs of turnaround. "Out of the 41 high frequency leading indicators, 11 reveal a significant decline in Q1FY21, except in domestic Tractor Sales, Bitumen Consumption and ASCBs bank deposits.Based on the leading indicators YoY performance, we are also expecting the gross value added (GVA) degrowth to be between –14.5 per cent and -16.5 per cent in Q1FY21," he says.
Data released by the government last week showed that India’s factory output contracted sharply for the fourth straight month in June, though at a slower pace than in May, signaling gradual process of normalisation of manufacturing activity. Data provided by the National Statistical Office showed the index of industrial production (IIP) contracted 16.6 per cent in June as against 34 per cent contraction in May. During the June quarter, IIP contracted 35.3 per cent, which may heavily weigh on GDP growth for that quarter.
Experts expect that the GDP growth to contract by 15.2 per cent YoY in Q2, and an average of -4.2 per cent in H22020, dragging overall growth by -5.0 per cent in 2020.
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