Mumbai: Goldman Sachs has more than halved its GDP growth forecast for India for the current financial year to 1.6% from 3.3%, with the 21-day nationwide shutdown and increasing anxiety about the coronavirus expected to erode activity sharply in Jan-Mar and Apr-Jun.
"Over the past two weeks, with the escalation of the COVID-19 crisis, our global team is now forecasting the world to be in a recession in 2020, with risks remaining on the downside," Goldman Sachs economists Prachi Mishra and Andrew Tilton said.
Goldman Sachs has downgraded its growth forecast for the global economy to (-)1.8% in 2020, while the US economy is seen contracting 6.2%.
Announced on Mar 24, the 21-day national lockdown has brought India to a near halt, with only essential services continuing to operate, as the country battles with the spread of the coronavirus, which has resulted in the death of 149 people. India currently has a total of 4,643 active coronavirus cases.
Globally, the virus has claimed the lives of nearly 75,000 people, with over 1.3 mln confirmed cases. To tackle the unprecedented slowdown in activity, Goldman Sachs expects Indian governments at the Centre and state levels to announce fiscal stimulus packages over and above last month's 1.7-trln-rupee relief plan for the poor.
The RBI is also seen continuing to cut interest rates, with Mishra and Tilton expecting the repo rate to be reduced by another 50 basis points in the coming months. "While more forceful policy support could present some upside risk, the recovery could further be delayed if the pandemic is not brought under control globally and domestically over the next few months," the economists warned.
"The 1.6% growth for FY21 would be deeper compared to widely perceived 'recessions' India experienced in the 1970s, 1980s, and in 2009...the global COVID-19 crisis--or more precisely, the response to that crisis-- represents a physical (as opposed to purely financial) constraint on economic activity that is unprecedented in post-war history," they added.