Acuite Ratings sees Q1 growth contracting 5-6% on coronavirus woes

Domestic ratings agency Acuite Ratings has forecast a massive 5-6 per cent contraction in growth in the first quarter of the new fiscal due to the coronavirus-driven lockdown.

The agency estimates the daily loss to the economy from the lockdown at around USD 4.6 billion and fears that if at all the countrywide shutdown is lifted on April 14, the risks of a prolonged disruption in economic activities exist depending on the intensity of the outbreak.

“The 21-day lockdown will result in a GDP loss of almost USD 98 billion, pulling down the Q1 growth 5-6 percent,” the agency warned, adding that in the best case scenario, growth may limp back into the green territory in Q2.

Accordingly, it expects “the overall GDP growth for FY21 to be 2-3 percent which takes into account a significant economic revival in the second half.”

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The worst hit sectors due to the lockdown are transport, hotel, restaurant and real estate activities, which would see around 50 per cent GVA loss accounting for around 22 per cent in overall GVA, in Q1.

The agency believes that it would take at least two-three months to restore the supply chain even if the lockdown is limited to 21 days, as there are also further risks of local lockdowns in various regions depending on the extent of the outbreak.

It estimates that Q2 may show a moderately positive growth of under-3 per cent on the back of the expected normalisation process and some pent up demand although it is also linked to the intensity of the pandemic.

“On the positive side, a quick recovery is likely in H2, driven by the fiscal and monetary measures along with lower global oil prices. We therefore, believe that the average H2 GDP expansion may be around 6.5 percent,” it said in a report.

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On the positive side, the agricultural sector that accounts for 15 per cent of GVA will be relatively less impacted as crop harvesting and food distribution activities will continue; however, livestock and fishery segments will see muted demand, lowering average growth to 3.5-4 per cent.

On the other hand, the services that are expected to see enhanced activities during this time are telecom, broadcasting and healthcare. However, at 3.5 per cent these sectors have a small contribution in the overall GVA.

The lockdown impact is fairly severe on industrial activities which is set to witness significant contraction except in pharma, gas & electricity and medical devices which together account for 5 per cent of GVA.