Goldman Sachs: India's economy will shrink 45% this quarter and suffer a brutal recession this year

Goldman Sachs expects the Indian economy to shrink 45% on an annualized basis this quarter.Reuters
  • Goldman Sachs predicts the Indian economy will shrink by an annualized 45% this quarter as the coronavirus pandemic takes a heavy toll.
  • The bank's economists expect the nation's GDP to rebound 20% in the third quarter of the year, compared to the current quarter, as economic activity comes back.
  • Goldman forecasts a 5% drop in real GDP this fiscal year, marking India's most severe recession since 1979.
  • Visit Business Insider's homepage for more stories.

Goldman Sachs predicts the Indian economy will shrink by 45% on an annualized basis this quarter, and suffer its most severe recession since 1979 this fiscal year, as the coronavirus pandemic wreaks havoc on many of its industries.

The banking giant's latest quarterly growth forecast, detailed in a May 17 note, is significantly worse than its previous estimate of a 20% decline. More positively, its economists expect the Indian economy to rebound 20% in the third quarter, compared to the current quarter. They then anticipate 14% growthe in the fourth quarter and 6.5% growth in the first quarter of 2021.

Overall, Goldman's forecasts suggest India's GDP will slump 5% this fiscal year, which would be its steepest contraction since 1979.Advertisement

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The FY21 forecast of -5% growth would be the sharpest contraction since 1979.Goldman Sachs

India's finance minister recently detailed a stimulus package worth 20 trillion rupees ($265 billion), or about 10% of national GDP, intended to offset the economic fallout of the coronavirus outbreak. However, Goldman economists Prachi Mishra and Andrew Tilton argued government interventions wouldn't immediately shore up growth.
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"There have been a series of structural reform announcements across several sectors over the past few days," they said in the note. "These reforms are more medium-term in nature, and we therefore do not expect these to have an immediate impact on reviving growth."

India has racked up more than 95,000 confirmed cases of coronavirus and more than 3,000 fatalities, according to the latest figures. The government has extended its lockdown to May 31, and plans to gradually relax restrictions to mitigate the impact on its ailing economy. Read More: A Wall Street equity chief lays out 5 reasons why another 'significant drawdown' in stocks is coming right after the fastest crash in historyAdvertisement

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