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COVID-19: India's slowdown to be unprecedented in post-war history, says Goldman Sachs

The brokerage, which had forecasted the GDP to expand by 3.3 per cent on a real basis in FY21 on March 22, said the 1.6 per cent growth will be deeper than the commonly perceived recessions India has experienced in 1970s, 1980s and 2009. This is the lowest forecast for the year as a whole yet.

, ET Bureau|
Last Updated: Apr 08, 2020, 11.14 PM IST
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The growth slowdown is different from previous recession episodes because there is fear in the minds of citizens which were not present earlier, Goldman Sachs said.
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MUMBAI: US investment Bank Goldman Sachs has followed its peers in revising its India growth forecast for the second time in less than a month. It has forecast India's growth to slow down to 1.6 per cent in FY'21, the worst pace in the post war history. But it expects a strong sequential recovery in the second half.

Gold man Sachs revised India's growth forecast for FY'21 from its earlier forecast of 3.3 per cent. It justified the downward revision as in In India, the spread of the virus, announcements of a nationwide shutdown from March 25, social distancing measures, and fears among consumers and businesses, have all escalated sharply over the past two weeks. " High frequency data, as well as anecdotal evidence, although still limited, suggest a significant contraction in economic activity" it said.

" The 1.6% growth for FY21 would be deeper compared to widely perceived “recessions” India experienced in the 1970s, 1980s, and in 2009. Notably, as our global team has argued, 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 postwar history". the US investment bank said in a report on Wednesday.

But it expects a strong sequential recovery in the second half of the fiscal year, based on three assumptions. First, the 3-week nationwide lockdown, which is expected to be removed only in a staggered fashion, and social distancing measures reduce new infections over the next 4-6 weeks.

Second, while the fiscal easing so far has been limited, its expectation is for further fiscal stimulus by the center and the states. Third, it expects the RBI to continue with its monetary easing policy, along with liquidity infusion measures. 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.
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