Q4FY20 GDP shows slowdown deepening, demand weakening due to coronavirus

The government had imposed coronavirus lockdown in the last week of March to curb the spread of the virus and the GDP data for Q4 also takes into account data from the lockdown week.

While Q4FY20 GDP data has surpassed most estimates, the growth slowing to 3.1% reflects an intensification of economic slowdown on the back of the coronavirus pandemic which has afflicted countries around the world. The government had imposed coronavirus lockdown in the last week of March to curb the spread of the virus and the GDP data for Q4 also takes into account data from the lockdown week. The growth rate of eight core industries for April 2020 has also fallen by 38.1%, compared to a fall of 9% in March 2020. However, the growth numbers announced on Friday still have room for revision as the government said that these can go some alteration in coming time due to insufficient data at present. The government has also revised GDP growth numbers for the quarters Q1, Q2 and Q3. Here’s what various economists, experts have to say about Q4 and full year growth numbers on Indian GDP. 

 

“Expectedly, the 4QFY21 GDP slowed down across manufacturing, construction and trade hotels, partly reflecting the sudden halt in economic activity led by the COVID-related response. Probable, some data gaps could also have made the data patchy. While the slowdown in economy was already underway, the COVID-19 related disruptions has further exaggerated the issue. We expect the 1QFY21 to record a sharp contraction of over 14% , with only a gradual recovery thereafter. For the year, we continue to expect contraction in GDP (over 5%). Accordingly, expansionary fiscal and monetary response will have to continue to aid the economy,” she said.

 

“The fall in growth during the last quarter of FY20 can in large part be attributed to the near absence of economic activity due to the restrictions and lockdowns in March, which typically tends to be a month which sees increased output with businesses trying to meet targets before the end of the financial year”.

“Overall, better-than-expected growth in agriculture and fiscal spending (explained by 4.6% fiscal deficit in FY20) led to higher GDP growth. We expect real GDP to decline ~21% in 1QFY21,” he said.

 

  • Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

“It is not surprising that Q4FY20 GDP print stands at 3.1% given the weakness in demand seen in the economy in the pre-Covid months. In the opinion of Acuité Ratings, the figures for FY20 largely reflect the intensification of the economic slowdown that started to build up from Q2/Q3 of FY19. The gradual slowdown in the growth trajectory is indicated in the revised quarterly GDP figures and the estimated print for FY20 at 4.2% as compared to 6.1% in FY19. Clearly, the growth momentum got further dampened towards the year end due to the economic disruption from the virus outbreak that already started a couple of weeks before the onset of the pan India lockdown in the last week of March. While the decline in growth of private consumption to 5.3% in FY20 was somewhat expected, the larger worry is the decline in gross fixed capital formation at 2.8% as compared to a growth of 9.8% in the previous year. The contraction in exports at 3.6% vis-à-vis 12.3% in the previous year also highlights the stress in the external sector,” she said.

 

  • Dhiraj Relli, MD & CEO, HDFC Securities

The Q4FY20 GDP number came in better than expected at 3.1% (11 year low) though the downward revision in the previous three quarters takes away some of that relief. The poor data on growth of India’s eight infrastructure sectors contracting by a record 38.1% in April led by cement, steel, electricity and coal was partly on expected lines. However this data does not portend well for Q1FY21 unless we see a fast and complete lifting of lockout with safeguards in place.  

The fact that Manufacturing sector has grown at 0% for the whole of FY20 vs 5.7% in previous year highlights the extent of issues in that sector and prompts faster and thorough measures to kickstart manufacturing given that the first two months of FY21 are washouts and job creation remains a top priority in the current times. Construction is the other sector needing immediate attention. Agriculture could do well even in FY21 after growing 4% in FY20 and lead the sectoral growth in FY21, contrary to its negative contribution in all earlier years of negative GDP growth,” he said.

 

  • Joseph Thomas, Head of Research – Emkay Wealth Management.

“The sluggishness in economic growth which was a feature of the numbers in the Q2 and Q3 of the last financial year, manifested itself once again in the Q4 growth rate falling further to 3.10 %. This number fully reflects the slowdown which the economy was going through in the last two years, and it also amply highlights the importance of a demand-led recovery for sustainable future growth. This number is more important than a quarterly number. Because this number would be the base against which the impact of the lockdown and consequent demand destruction, loss of productivity and employment would mapped. What could be the fall from this level us the question that would be asked. It goes without saying that the number for Q1 of the current financial year will be much lower bordering on the negative as we get the first estimates after a month. That the core sector output contracted by 38% in April is an indicator of the dent which the lockdown is likely to bring forth in economic activity and the resultant numbers,” he said.

 

  • B. Gopkumar, MD & CEO, Axis Securities

“GDP growth at 3.1% is not a major surprise considering the challenges that started in March 2020 and Q1FY21 will be even weaker. This information is already factored by the market and now focus has shifted to opening of the economy. The pace at which demand will be restored to normalcy is critical. There have been some encouraging signs in consumer staples, digital businesses and Pharmaceuticals. However, large ticket consumer discretionary revival will take time. Overall, businesses have drawn plans to deal with the situation and economy will improve from hereon and demand will pick up with each passing month,” he said.

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