Slowdown Blues: Fitch cuts India's FY20 GDP forecast to 4.9%

Fitch Solutions on Monday said it has lowered its 2019-2020 (FY20) GDP growth forecast for India to 4.9 per cent, citing weak domestic demand and supply chain disruptions due to the coronavirus outbreak. The agency expects economic growth to pick up to 5.4 per cent in financial year 2020-21.

"We at Fitch Solutions are revising down our forecast for India's real GDP growth to 4.9 per cent in FY20, from 5.1 per cent previously, and 5.4 per cent in FY21, from 5.9 per cent previously," the agency said in its outlook for the country.

The global rating agency warned that India's export manufacturing sector may be impacted by disruption in the automotive and electronics supply chain from the ongoing COVID-19 outbreak in China, which took the death toll in China to 2,912, and worldwide to more than 3,000.

The manufacturing sector, which constitutes 14 per cent of GDP growth, remained weak over the near term. The contraction in manufacturing eased slightly to 0.2 per cent in Q3, from 0.4 per cent in Q2.

"Our revision is due to our view for disruption in the automotive and electronics supply chain from the ongoing Covid-19 outbreak in China to weigh on India's export manufacturing sector, and for this to have negative knock-on effects on the broad services sector," Fitch Solutions said.

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The development comes days after India's real GDP growth decelerated to 4.7 per cent in third quarter ended December 31, 2019, due to weak consumption, a contraction in gross fixed capital formation and a smaller net exports contribution. While the gross fixed capital growth fell by 4.5 per cent, the government consumption growth slipped to 11.8 per cent from 13.2 per cent in the second quarter.

The government has also revised the GDP figures for first and second quarters of this fiscal to 5.6 and 5.1, respectively. It expects GDP growth during the entire financial year 2019-20 to be at 5 per cent. This pegs GDP estimates for the fourth quarter of FY20 to 4.6 per cent.

"A failure of the FY21 Union Budget to provide support to the industry will also bring little reprieve for a sluggish industry already coming under heavy pressure from a credit squeeze following the collapse of several key Non-Bank Financial Companies (NBFCs)," it said.

Also Read: Centre expects worse Q4 GDP growth at 4.6%

Fitch expects a slight pick-up in growth in the next fiscal, assuming that the virus spread would come down from June, which may lead to a broad-based improvement in economic activity.

"We expect manufacturing activity to come under further pressure from weak domestic demand and also supply chain disruptions due to the Covid-19 outbreak, which started in China. Weak manufacturing activity would also have a knock-on impact on slowing services growth," it said.

The agency expects manufacturing and services to pick up in FY21. "We also expect economic activity to be supported by an improvement in the agriculture sector through better harvest prospects and fiscal support announced in the FY2020-21 Union Budget."

By Chitranjan Kumar with PTI inputs