March 4: Nepal’s economy has plunged into a recession for the first time in its history as GDP witnessed negative growth rates for two consecutive quarters.
According to newly released GDP figures by the Central Bureau of Statistics (CBS), the economy shrank 15.4 percent in the fourth quarter of the last fiscal year 2019/20 followed by a contraction of 4.6 percent in the first quarter of the current fiscal year 2020/21.
The CBS forecast of declines in GDP growth for two consecutive quarters meet the standard definition for recession, according to economists. This is the first time that the economy has gone into recession since the CBS started to publish the National Accounts report in 1961/62, according to a senior official at the Nepal Rastra Bank (NRB).
“These forecasts of GDP declines show that the economy was in recession during this period. We have not seen such deep contraction in the GDP since CBS started to publish the National Accounts report in 1961/62. There has not been a decline for two consecutive quarters since the CBS started to release quarterly figures in 2004/05,” said the senior official at the NRB, requesting anonymity as he is not authorized to comment on growth figures.
Economists also agree that the contractions represent the recession that Nepal’s economy underwent for at least six months.
“The quarterly data shows that the economy is technically in a recession, but recovery is underway. The extent of contraction is less in the first quarter of the current fiscal year 2020/21 compared to the fourth quarter of the last fiscal year 2019/20,” Chandan Sapkota, an economist, told New Business Age.
Covid-19 is the main culprit for the contraction in the economy, according to officials and economists.
As the government imposed nationwide lockdown in March last year for nearly four months to contain the spread of coronavirus, economic activities in almost all sectors collapsed.
The impact of the lockdown in the economy at the fourth quarter was so significant that it pulled the growth rate of the entire fiscal year into the negative territory.
The CBS forecasts that the Nepal’s economy slumped 1.99 percent in the last fiscal year, down from its preliminary estimate of a growth by 2.27 percent.
In its preliminary forecast released in April, the CBS had painted somewhat rosy growth prospect for Nepal even when other countries were reporting a sharp contraction in their economies.
CBS officials say that their preliminary forecast was based on an assumption that the lockdown would be short-term and end by June which would lead economic activities to normality.
“The country was in a complete lockdown until mid July last year which disrupted most of the economic activities longer than we had anticipated in our preliminary forecast,” said Ganesh Prasad Acharya, a director at National Account Section at the CBS.
The CBS move to change the base year for the calculation of GDP estimates—a process known as rebasing of National Account statistics—is also said to have contributed to the decline of GDP growth to some extents. The base year 2000/01 has now been replaced with 2010/11.
“Rebasing increased the share of services sector in GDP but reduced that of agri. High contact services sectors such as retail and wholesale, and travel and tourism were battered by COVID-19 and the lockdowns. This contributed to deeper contraction,” said Economist Sapkota.