In June, Fitch Ratings had predicted a global GDP fall of 4.6 per cent. However, in its latest Global Economic Outlook (GEO) report the rating agency revised the global GDP to fall by 4.4 per cent. In the case of India, it slashed the GDP further.
The agency attributed this upward revision in economic activity after the COVID-19-related recession in March and April has been swifter than anticipated, but it expected the pace of expansion to moderate soon.
Meanwhile, the agency slashed India’s GDP forecast for this fiscal year to -10.5 per cent from earlier - 5 per cent. India recorded one of the sharpest GDP contractions in the world in 2Q20 (1Q of the 2020 fiscal year). GDP shrank a staggering 24 per cent year-on-year.
The agency added it expects India’s GDP to rebound strongly in the third quarter of 2020-2021. It also pointed that there are signs that the recovery has been sluggish and uneven. “The PMI balances have bounced back but they imply that the level of activity is still well below its pre-pandemic level in 3Q20. Still-depressed levels of imports, two-wheeler sales and capital goods production indicate a muted recovery in domestic spending,” it highlighted.
"China has already regained its pre-virus level of GDP and retail sales in the US, France and the UK now exceed February levels, but we doubt this will become the much-lauded 'V'-shaped recovery. Unemployment shocks lie ahead in Europe, firms are cutting capex, and social distancing continues to directly constrain private-sector spending", said Brian Coulton, Chief Economist, Fitch Ratings.
The agency is now expecting the US economy to contract by 4.6 per cent this year compared to a fall of 5.6 per cent in the June GEO. Meanwhile, China’s growth forecast for 2020 is +2.7 per cent (this was revised in late-July at the time of our most recent China sovereign rating review) compared to +1.2 per cent in the June GEO.
Official data have now revealed the extent of the economic dislocation in 2Q20 with world GDP falling by 8.9 per cent yoy and many countries seeing falls in output of a fifth or more. “The UK, India, France, Italy and Spain stand out, having experienced stringent and/or lengthy lockdowns in 2Q20 which saw mobility (visits to retail and recreation venues) levels fall very sharply and 2Q20 GDP surprise on the downside compared with our June GEO estimates.”
"We still see the recovery path being decidedly 'swoosh'-shaped. Off the back of a two-month recession we think it will take 18 months from the low-point in April for the US to get back to 4Q19 GDP and 30 months in the eurozone", said Coulton.
