(Bloomberg) — India’s economic recovery prospects have gone from bad to worse after the nation emerged as a new global hotspot for the coronavirus pandemic with more than 5 million infections.
Economists and global institutions like the Asian Development Bank have recently cut India’s growth projections from already historic lows as the virus continues to spread. Goldman Sachs Group Inc. now estimates a 14.8% contraction in gross domestic product for the year through March 2021, while the ADB is forecasting -9%. The Organisation for Economic Co-operation and Development sees the economy shrinking by 10.2%.
The failure to get infections under control will set back business activity and consumption — the bedrock of the economy — which had been slowly picking up after India began easing one of the world’s strictest and biggest lockdowns that started late March. Local virus cases topped the 5 million mark this week, with the death toll surpassed only by the U.S. and Brazil.
“While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve,” said Sunil Kumar Sinha, principal economist at India Ratings and Research Ltd., a unit of Fitch Ratings Ltd. He now sees India’s economy contracting 11.8% in the fiscal year, far worse than his earlier projection of -5.8%.
Goldman Sachs’s latest growth forecast came last week after data showed gross domestic product plunged 23.9% in the April-June quarter from a year ago, the biggest decline since records began in 1996 and the worst performance of major economies tracked by Bloomberg.
While there are some signs that activity picked up following the strict lockdown, a strong recovery looks uncertain.
“By all indications, the recovery is likely to be gradual as efforts toward reopening of the economy are confronted with rising infections,” Reserve Bank of India Governor Shaktikanta Das told a group of industrialists Wednesday.
The central bank will likely release its own growth forecast on Oct. 1 when the monetary policy committee announces its interest rate decision. In August, the RBI said private spending on discretionary items had taken a knock, especially on transport services, hospitality, recreation and cultural activities.
The plunge in GDP, as well as ongoing stress in the banking sector and among households, will curb India’s medium-term growth potential. Tanvee Gupta Jain, an economist at UBS Group AG in Mumbai, estimates potential growth will slow to 6% from 7.1% year-on-year estimated in 2017.
What Bloomberg’s Economists Say
India went into the Covid-19 pandemic already suffering a downward trend in growth potential. We expect a 10.6% contraction in fiscal 2021, rebound in 2022, and slower path for growth as scars from the virus recession drag on the remaining years of the decade.
Click here to read the full report.
Abhishek Gupta, India economist
In addition to that, corporate profits have collapsed, putting a brake on investments, which in turn, will curb employment and growth in the economy.
India is “likely to see a shallow and delayed recovery in corporate sector profitability over the next several quarters,” said Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, who has downgraded his fiscal year growth forecast to -8% from -6.2%. That will “reduce the incentive and ability for fresh investments, which in turn will be a drag on credit growth and overall real GDP growth,” he said.
Still, foreign investor sentiment will likely return once the pandemic eases, said Todd Buchholz, a former White House economist and now author.
“The virus is seen as a temporary phenomenon,” he said in an interview. “Those investors who were lining up to invest in India in January 2020 will do so in 2021 also, and deregulation has to continue.”
(Updates with comment from economist in last paragraph.)
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Big Tech Continues Its Surge Ahead of the Rest of the Economy – The New York Times
While the rest of the U.S. economy languished earlier this year, the tech industry’s biggest companies seemed immune to the downturn, surging as the country worked, learned and shopped from home.
On Thursday, as the economy is showing signs of improvement, Amazon, Apple, Alphabet and Facebook reported profits that highlighted how a recovery may provide another catalyst to help them generate a level of wealth that hasn’t been seen in a single industry in generations.
With an entrenched audience of users and the financial resources to press their leads in areas like cloud computing, e-commerce and digital advertising, the companies demonstrated again that economic malaise, upstart competitors and feisty antitrust regulators have had little impact on their bottom line.
Combined, the four companies reported a quarterly net profit of $38 billion.
Amazon reported record sales, and an almost 200 percent rise in profits, as the pandemic accelerated the transition to online shopping. Despite a boycott of its advertising over the summer, Facebook had another blockbuster quarter. Alphabet’s record quarterly net profit was up 59 percent, as marketers plowed money into advertisements for Google search and YouTube. And Apple’s sales rose even though the pandemic forced it to push back the iPhone 12’s release to October, in the current quarter.
On Tuesday, Microsoft, Amazon’s closest competitor in cloud computing, also reported its most profitable quarter, growing 30 percent from a year earlier.
“The scene that’s playing out fundamentally is that these tech stalwarts are gaining more market share by the day,” said Dan Ives, managing director of equity research at Wedbush Securities. “It’s ‘A Tale of Two Cities’ for this group of tech companies and everyone else.”
The results were strong despite increasing antitrust scrutiny from regulators. Last week, the Justice Department filed a lawsuit accusing Google of cementing the dominance of its search engine through anticompetitive agreements with device makers and mobile carriers. Facebook faces a possible antitrust case from the Federal Trade Commission.
The companies’ advantages are becoming more pronounced in an economy starting to dig out from the coronavirus pandemic. On Thursday, the Commerce Department said U.S. economic output grew 7.4 percent last quarter, the fastest pace on record, but remained below where it was in the last pre-pandemic quarter.
That slow return to health is also providing momentum to companies that suffered early in the pandemic, like Twitter, which reported on Thursday that revenue rose 14 percent in the third quarter as advertisers started to return. Twitter’s stock dropped about 14 percent in after-hours trading on Thursday, a reaction that analysts attributed to slow user growth.
Big Tech’s third-quarter boom could look modest when compared with the final quarter of the year. For Apple, it’s when consumers buy newly released iPhones. And the year-end shopping peak means lots of customers turning to Amazon for gifts, while advertisers rely on Google and Facebook for digital ads during the holidays.
The pandemic-fueled surge in online shopping pushed Amazon to a record for both sales and profits in the latest quarter.
Sales were $96.1 billion, up 37 percent from a year earlier, and profits rose to $6.3 billion.
The quarter did not include the usual boost from Prime Day, Amazon’s yearly deal bonanza, which was delayed to October. And the profit increased during a building boom, with Amazon expanding its fulfillment infrastructure by 50 percent this year. The company added almost 250,000 employees in the quarter, for the first time surpassing more than a million workers.
The lucrative Amazon Web Services division grew 29 percent as companies continued their shift to cloud computing.
Amazon said sales could reach $121 billion in the fourth quarter because of the confluence of Prime Day, the holiday shopping season and the turn to online spending.
The delay in the iPhone 12’s release meant Apple would face a tough comparison with the same quarter last year, which included sales of the iPhone 11. As a result, iPhone sales dropped more than 20 percent in the quarter.
Yet Apple’s overall sales still rose 1 percent to $64.7 billion, showing the increasing strength of other parts of the company’s business.
Apple’s services segment, which includes revenues from the App Store and offerings like Apple Music, increased 16 percent to $14.5 billion. Sales rose 46 percent for iPads, 29 percent for Mac computers and 21 percent for wearables.
Profits fell 7 percent to $12.7 billion, partly because the company spent more on research and development.
“There are lots going on here, and everything is going incredibly well,” Luca Maestri, Apple’s finance chief, said in an interview.
Facebook’s revenue for the third quarter rose 22 percent from a year earlier, to $21.2 billion, while profits jumped 29 percent to $7.84 billion. The results surpassed analysts’ estimates of $19.8 billion in revenue and profits of $5.53 billion, according to data provided by FactSet.
Facebook had strong results despite a wide-ranging boycott by advertisers this summer over issues of hate and toxic speech on the site. Though the grass-roots campaign, Stop Hate for Profit, rallied many of the top advertisers on Facebook to reduce their spending, the overall effects were brief.
The company continued gaining users as well. More than 1.82 billion people used the Facebook app every day, up 12 percent from a year earlier, it said. More than 2.54 billion people now use one or more of Facebook’s family of apps — Instagram, WhatsApp, Messenger or Facebook — daily, up 15 percent from a year earlier.
After its first-ever decline in quarterly revenue in the second quarter, Alphabet rebounded with its highest-ever profit. The strength came from across Google, with search advertising revenue growing 6 percent and YouTube ad spending rising 32 percent. Google’s cloud computing business grew 45 percent.
When advertisers slowed spending with Google this year as Covid-19 started to spread, Alphabet’s business took a significant hit. But as the economy has improved and businesses found their footing, advertisers have returned.
Alphabet posted a net profit of $11.25 billion in the third quarter as revenue rose 14 percent to $46.1 billion. Ruth Porat, Alphabet’s chief financial officer, said the improved profitability reflected efforts to cut costs during the economic downturn, including a hiring slowdown.
NEW: Economic Comeback Under President Trump Breaks 70-Year Record – Whitehouse.gov
News broke this morning that real GDP grew at an annualized rate of 33.1% in the third quarter of 2020—beating expectations and setting an all-time record.
This jump in GDP is nearly double the previous record set 70 years ago.
Thanks to President Trump’s policies, the American economy is weathering the global pandemic better than any other major Western country, including those of Europe. As the Council of Economic Advisers wrote this morning:
While the pandemic hit every major economy around the world, the United States experienced the least severe economic contraction of any major Western economy in the first half of 2020, with the Euro Area economy’s contraction being 1.5 times as severe as the contraction of the U.S. economy.
Since April, America has gained over 11.4 million jobs, recovering more than half of those lost because of lockdowns. Retail sales are already above pre-pandemic levels, many construction and manufacturing jobs have returned, business activity is at a 20-month high, and new jobless claims fell to their lowest level this week since the beginning of the pandemic.
This “V-shaped” recovery is beating economist predictions and outpacing the slow recovery under former President Obama. After the 2008-09 recession, it took the Obama Administration 4 times as long to regain the same share of lost economic output.
Two big reasons explain President Trump’s success. The first is that his pro-growth, pro-worker agenda made our economic fundamentals stronger. Before Coronavirus swept the globe, American incomes hit a record high in 2019 while poverty rates hit a record low. Median incomes saw their biggest one-year jump ever.
Second, President Trump took targeted action to help American workers and families after the Coronavirus hit. His Administration negotiated the CARES Act, implemented the Paycheck Protection Program to save jobs, extended supplemental unemployment benefits, paused student loan payments, and halted evictions.
Today, the left wants to emulate Europe, issue endless lockdowns, and use the pandemic as an excuse to grow government control of the economy and society. President Trump wants to keep working with the private sector, protect the most vulnerable among us, and safely reopen our economy and schools.
Today’s GDP report makes it clear: The data supports President Trump’s strategy.
The Great American Comeback is well underway—a testament to both President Trump’s policies and the strength and resilience of America’s workers and families.
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