HYDERABAD: The Indian economy is in ‘deep trouble’ as its GDP growth is expected to contract by 5 per cent this fiscal, according to S&P Global Ratings. The agency added that the economy may be healing, but private sector confidence remains fragile. And if private sector spending fails to improve quickly, more stimulus may need to be unleashed.
“India’s economy is in deep trouble. Difficulties in containing the virus, an anemic policy response, and underlying vulnerabilities, especially across the financial sector, are leading us to expect growth to fall by 5 per cent this fiscal year before rebounding in 2021,” the ratings firm said on Friday.
In its report on losses in the Asia-Pacific region, S&P projected that the region’s economy is likely to shrink by 1.3 per cent in 2020, but grow by 6.9 per cent in 2021.
“Asia-Pacific has shown some success in containing COVID-19 and, by and large, responded with effective macroeconomic policies,” noted Shaun Roache, chief economist for Asia-Pacific, S&P Global Ratings.
Roache went on to add that this could help cushion the blow and provide a bridge to the recovery, which looks set to be weighed down by indebted balance sheets.
According to the ratings agency, one of the risks looming large is yet another balance sheet recession in which at least one important sector of the economy, be it the government, firms, or households, may bolster weak financial positions by saving more, paying down debt, and spending less.
“The downturn caused by Covid-19 did not start as a balance-sheet recession but may end up as one,” Roache explained adding that even after a vaccine was found, economy will take permanent hit led by less investment and a slower recovery. Meanwhile, banks may lend less than they normally would in a recovery phase in order to focus on the overhang from the pandemic.
Balance sheet recession looms
One of the risks looming large is yet another balance sheet recession in which at least one important sector, be it the government, firms, or households, may bolster weak financial positions by saving more, paying down debt, and spending less.