Barclays sees 2020 GDP degrowth at 4%, pegs lockdown cost at $306 billion

Negative economic growth is certain in the ongoing financial year. The Reserve Bank of India has already said that country's GDP growth could be in negative territory in 2020-21. While the central bank didn't give an estimate to it, global investment bank Barclays sees 4 per cent GDP degrowth  in calendar year 2020 and 3.2 per cent in FY21.

Revising its forecast for the June quarter, the brokerage estimates Q1FY21 growth to contract by 22.2 per cent year-on-year compared to 12.4 per cent earlier.

"We now assume that partial movement controls will remain in place across key economic states for 10 weeks beyond the scheduled end of phase-four of the lockdown, that is until mid-August. We estimate this additional period will see incremental economic losses of $71.5 billion, bringing the total cost of the lockdown to an estimated $306 billion (11.5 per cent of GDP)," says Barclays in a note.

With over 190,000 confirmed cases as on May 31, India has the world's 7th highest number of recorded coronavirus infections. However, more than 48 per cent infected people have recovered fully with death rate of less than 3 per cent among confirmed COVID-19 cases.

The Road ahead

On economic revival, Barclays says it sees economic activity improving more gradually now as a revival of confidence and return to normalcy will take longer. "We assume a normal monsoon season this year and some unleashing of pent up demand in Q4 2020 (December quarter) will help support a revival in activity, though we then think growth will likely slump again in H1 2021."

Nonetheless, its growth forecast for 2021 remained broadly unchanged at 7.6 per cent year-on-year compared to 7.5 per cent predicted before. It  modestly lowered the FY22 GDP estimate to 7.4 per cent from 7.7 per cent previously.

On the positive side, the brokerage says consumption indicators have shown signs of modest improvement in May. "With the gradual easing of lockdown restrictions underway, electricity demand returned to 2019 levels in the last week of May. The return of private vehicles to roads in major parts of the country, fuel consumption is also starting to rise."

However, savings levels are expected to increase as people turn risk averse to save more than invest or spend. "A rise in deposit holdings in the banking system while credit slumps points to some evidence of higher precautionary savings, along with lower recreational spending."

Meanwhile, data on Monday showed that the manufacturing PMI has recovered slightly to 30.8 in May from 27.4 in April, despite some relaxation in the lockdown over the last few weeks. "PMIs, which nosedived to record lows in April, have shown some signs of bottoming, though a full recovery is not yet in sight," Barclays says.

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