InvestorQ : What are the implications of ICRA lowering its forecast for GDP growth in FY21?
diksha shah made post

What are the implications of ICRA lowering its forecast for GDP growth in FY21?

Answer
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Anamika Sodhani answered.
4 weeks ago


The downgrade is not too large and in fact ICRA had been too conservative compared to the other global estimates. Therefore, ICRA revised its forecast for GDP contraction in FY21 from its original estimate of 9.5% to 11%, which is almost in line with other estimates.

Fresh COVID-19 infections remained elevated and that was likely to slow the recovery. While the economy did show distinct signs of a recovery in June and July, the growth in August and September came under pressure due to a spurt in COVID cases.

For the time being, ICRA has retained its Q2 forecast at -12.4% contraction for the quarter ending in September 2020. However, it has revised its Q3 projection to -5.4% from -2.3%. This is largely going to be the lag effect of the COVID-19 and its impact on growth.

Even the Q4 GDP growth has been downsized from -1.3% to -2.5% as the lag effect is likely to linger all the way to March 2021. It may be recollected that India GDP had shrunk by -23.9% in the Jun-20 quarter, the worst performance among large economies.

ICRA has now disclosed that it was constrained to lower its estimates of growth for Q3 and Q4 after data for MSME and less formal sectors showed much greater stress than it had originally anticipated. This is due to lower resilience in these sectors.