India walks into technical recession for the first time – UOB

Economist at UOB Group Barnabas Gan assessed the recent GDP figures in India.

Key Quotes

“India’s GDP contracted 7.5% y/y in the second quarter of its fiscal year (2QFY2020/21: July – September 2020). This was better than market expectations which pencilled a deeperthan-expected decline of 8.2% y/y. With two consecutive quarters of GDP contraction, India officially enters a technical recession for the first time since public data was made available as of 1997.”

“Notwithstanding the contraction in India’s GDP in 2QFY2020/21, we recognise that it is still a positive indication, as the pace of contraction moderated from India’s deepest y/y contraction of 23.9% in the previous quarter. Notably, 2QFY2020/21 GDP had also outperformed RBI’s projection of -8.6% y/y, suggesting that the economy was better even by official standards.”

“COVID-19 continues to be the key driver behind the recession, but more importantly, will determine how India may perform for the rest of its fiscal year.”

“Beyond the moderation in GDP contraction seen in 2QFY2020/21, recent high-frequency data suggests that India’s economy may be slowing once again. This is seen with exports contracting once again by 5.1% y/y in October 2020, down from September’s 6.0% y/y climb. India’s key eight infrastructure industries, a proxy for the health of India’s manufacturing sector, worsened to -2.5% y/y in October as well, down from a mere -0.1% y/y in September.”

“Overall, India’s GDP contracted 15.7% y/y in the first two quarters of its fiscal year, thus placing further downside risks to our initial full-year GDP estimate of -7.0% y/y. As such, we downgrade our GDP outlook to fall 9.0% in FY20/21. India’s rate of COVID-19 infections remains high at this juncture, while high-frequency data of late suggest further weakness in India’s GDP momentum.”