Fitch forecasts 5% contraction of Indian economy over slump, lockdown

Fitch Ratings on Tuesday forecast a 5 per cent contraction of Indian economy in the current fiscal, on account of slump in economic activities and very stringent lockdown policy.

This is substantially lower than 0.8 per cent growth for 2020-21 fiscal projected in April.

Fitch said it has made further cuts to world GDP forecasts in its latest Global Economic Outlook (GEO) for May, but the slump in global economic activity is close to reaching its trough.

"The biggest forecast cut was to India where we now anticipate a 5 per cent decline in the current financial year (ending March 2021) in contrast to an earlier forecast of growth of 0.8 per cent."

"India has had a very stringent lockdown policy that has lasted a lot longer than initially expected and incoming economic activity data have been spectacularly weak," Fitch said.

This compares to an estimated 3.9 per cent growth in the previous fiscal. Growth is, however, expected to rebound to 9.5 per cent in 2021-22.

"World GDP is now forecast to fall by 4.6 per cent in 2020 compared to a decline of 3.9 per cent predicted in our late-April GEO. This reflects downward revisions to the eurozone and the UK and, most significantly, to emerging markets (EM) excluding China," said Brian Coulton, Chief Economist, Fitch Ratings.