Barclays sticks to GDP projection of 0% in 2020; says lockdown 3 priced in

Barclays sees India’s growth as measured by gross domestic product (GDP) dip to 0% in calendar year 2020 (CY20) even as the government extended the zone-wise lockdown in the country and said that the extension till May 17 announced Friday already factors in this estimate. Barclays had always maintained that the lockdown India’s is likely to be longer than announced initially and had recently forecast the GDP dip to 0%.

“We remain comfortable that the lockdown may continue on a partial basis until June 6, as part of the precaution in containing the outbreak. We had also factored in a shift to a partial lockdown scenario from end-April in our last GDP forecast change, which appears to be broadly playing out. While acknowledging some downside risks from a lockdown extension in urban areas beyond 6 June, we maintain our GDP projection of 0% GDP growth for CY2020, and 0.8% for FY21,” wrote Rahul Bajoria of Barclays in a report.

The government officially extended India’s lockdown by another two weeks to May 17 on Friday evening. However, it did announce significant relaxations for large parts of the country, now demarcated into green, orange and red zones, signifying the level of risks and spread of Covid-19. Both orange and green zones will be allowed significant relaxations on the level and kind of economic activity undertaken on a graded basis.

“However, it is worth nothing that urban areas and economically more relevant cities such as Mumbai, Delhi, Pune, Chennai, Bengaluru, Hyderabad and Kolkata are all red zones, hence economic normalcy will take longer to emerge,” Bajoria of Barclays said.

Madan Sabnavis, chief economist at CARE Ratings, however, cautions that the extension in the lockdown, or Lockdown 3.0 as it is commonly referred to, could push the economy into deeper trouble. “One was hoping the government will spell out a roadmap of what the exit strategy should be,” he said.

Meanwhile, most analysts expect the government to roll out more stimulus measures over the next few weeks to stem the economic rout. Moody’s Investor Service (Moody’s), however, believes the recent policy measures by governments across Asia Pacific may not be enough to offset the impact of coronavirus (Covid-19) pandemic on their economies.

“Although Asia's external and fiscal buffers are generally more robust than those in other regions, equipping most Asian governments with more policy space, their policy responses to date will only cushion some of the impact and not fully offset the economic and credit damage. In addition, not all countries in the region have the same capacity to respond,” Moody's said in an April 21 note.

The Covid-19 pandemic, Moody's believes, will manifest itself through three types of shocks in the Asia Pacific (APAC) region - country-specific, regional and second-round.

The economic spillovers from country-specific shocks, Moody’s believes, are rapidly escalating into second-round shocks. While China has resumed economic activity and production, other economies are still grappling with the spread of the virus.