GDP, COVID-19 and World Economies

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Last updated on May 9th, 2021 at 04:19 pm

India makes history with a record low GDP since Independence.

India declared the most awaited GDP data today for the first quarter of FY 2020-2021 i.e. quarter ended Jun 20 to negative 23.9%. This is the worst contraction in the history of the Indian economy.

The novel coronavirus entered India in March 2020 and this COVID pandemic literally SHUT the economy. In such a situation no economy will be spared and give good results / GDP data. Having said that, if we look back in 2019, the Indian economy was already suffering from slow growth and experts were predicting “recession: to hit India if not the world. With this background, the pandemic hit India and the economy was at a halt.

In February 2020, while publishing the GDP data for Dec 19 quarter, RBI had warned about the downside risks to global growth due to COVID. The government also declared stimulus packages for the economy. However, the stimulus package was not appreciated by many experts. Many economists said that the government stimulus could take four to six quarters before lifting the economy and the impact of those efforts could be outweighed by the global fallout from the coronavirus epidemic.

In this scenario, there is no rocket science to expect the worst GDP data for Jun 2020. The questions are:

  1. How does it look compared to world economies, especially countries in Asia?
  2. Now that the unlocking is started, how much time will it take to get the economy to recover?
GDP – India and other economies in the world

Some Asian countries have already declared their June 20 quarter GDP data. If we look at the table below its evident that apart from China and Vietnam, no other Asian economy has posted a positive GDP growth rate.

India has posted the growth rate of negative 23.9% which is worst than any other Asian country. This is evident from the table below

(Reference https://tradingeconomics.com/)

The reason behind the positive growth rate in China can be attributed to the opening/unlocking of the economy in March / April 20. China was worst hit by the pandemic in Jan-20 to Mar 20 quarter, after which the Chinese economy started opening up. Whereas, most other economies started shutting down in March. That is why the growth rates of many other economies are positive for the March quarter, whereas China’s growth rate is worst in that quarter.

There are economies like Peru and Macau which are the worst hit economies, worse than India. However they are not considered in this analysis due its their small size.

If we look at the dominant world economies, the GDP growth rate stands as follows:

With India posting the – 23.9% GDP growth rate for Q1 FY 2021, it can be considered as the worst-performing G20 country.

India is followed by the UK, Spain, and other European countries which are worst affected in June 20 as compared to the other G20 countries with the double-digit depression rate along with Mexico.

In nutshell, no economy will be spared in this Pandemic caused by the recession. Only, the time involved in reviving these economies will create a new winner.

How much time will it take to get the economy to recover?

It is interesting to see how the economies face this pandemic caused recession.

If we look at the data from China, the Chines economy faced negative growth only for 1 quarter. The worst GDP rate published by China is just -6.8%. And the positive growth rate of whooping 3.2% was published in the June quarter against 6.1% in 2019. However, the authenticity of the data published by China is always a question mark. Hence, accepting China as the barometer of growth is unreasonable.

For UK and Europe, the COVID spread started slightly before India. However, their Unlocking and control over COVID started in June beginning itself. This means the European data for the comparable quarter was expected to be slightly better than India.

The USA poised relatively better data numbers but that’s a huge economy compared to India. In my opinion, the UK economy in GDP number terms is comparable with India as both the economies stand at 2800 Billion USD.

Hence, I am not surprised by such a bad number for the Indian Economy. The crux of the matter here is, when will we see the improving data for India. And what worries me here is that we are getting worse even in Coronavirus spread these days as compared to the UK and Europe.

So the bottom line is unless we control the pandemic and obtain new normalcy, the economy won’t be back on track. Naturally, it will take slightly longer for India to come back on track than other economies. Let’s hope for the best.

CA Janhavi Phadnis

 

Disclaimer: The above content is for general info purpose only and does not constitute professional advice. The author/ website will not be liable for any inaccurate / incomplete information and any reliance you place on the content is strictly at your risk.

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