India’s economy shrinks at the fastest pace on record

India’s economy contracted at the quickest pace on record in the second quarter, as lockdowns that were imposed to help control the spread of coronavirus decimated consumer spending and investment.

The economy shrank23.9% in the three months ending in June, compared with the previous year, according to official statistics released on Monday. The slump in the world’s fifth-largest economy was worse than economists expected, and one of the most severe contractions of any nation as a result of the pandemic.

Germany's Chancellor Angela Merkel (L) and France's President Emmanuel Macron attend prior the start of the European Union Council in Brussels on July 17, 2020, as the leaders of the European Union hold their first face-to-face summit over a post-virus economic rescue plan. - The EU has been plunged into a historic economic crunch by the coronavirus crisis, and EU officials have drawn up plans for a huge stimulus package to lead their countries out of lockdown. (Photo by Stephanie Lecocq/Pool/AFP/Getty Images)

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Investment collapsed by 47% compared with the previous year, while household consumption contracted by nearly 27%, according to Capital Economics. Government consumption increased by 16%, but that wasn’t enough to offset the sharp decline in activity in other sectors.

Shilan Shah of Capital Economics said the second quarter should mark the low point for India’s economy, but there are signs the recovery could be very slow even though lockdown measures have been eased. A key measure of manufacturing activity edged lower in July, and output from infrastructure industries remains depressed.

“The continued rapid spread of the coronavirus will dampen domestic demand,” said Shah. “What’s more, the underwhelming fiscal response to the crisis will guarantee a legacy of higher unemployment, firm failures and an impaired banking sector that will weigh heavily on investment and consumption.”

Once the fastest-growing major economy in the world, India limped into 2020 as consumer demand waned and the country’s automotive sector struggled. Then coronavirus hit.

Migrant workers gather outside Dharavi slums to board a bus to take them to railway terminus for boarding a special train back home during a nationwide lockdown imposed as a preventive measure against the COVID-19 coronavirus, in Mumbai on May 12, 2020. - India's enormous railway network was set slowly to grind back to life on May 12 in a gradual lifting of the world's biggest coronavirus lockdown, even as new cases surge. (Photo by INDRANIL MUKHERJEE / AFP) (Photo by INDRANIL MUKHERJEE/AFP via Getty Images)

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India has registered more than 3.6 million cases of coronavirus, according to data from Johns Hopkins University, and roughly 64,500 people have died from the disease. The numbers are rising quickly: It took almost six months for India to record 1 million cases, another three weeks to hit 2 million, and only 16 more days to hit 3 million.

Covid-19 has delivered a significant hit to every country’s economy. Each member of the G7 — Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — are officially in recession, for example.

The clear outlier among major economies is China, which catapulted into recovery mode in the second quarter following a drop in GDP between January and March, its worst performance over a three-month period in decades.

— Julia Horowitz and Swati Gupta contributed reporting.