Inflation | Moody’s cuts India growth forecast to 2.5%
New Delhi: Moody’s Investors Service sharply cut India’s growth forecast for calendar 2020 to 2.5% from 5.3% estimated barely 10 days ago after the government ordered a nationwide lockdown to curb the spread of the coronavirus. The ratings company estimates a 5% growth for calendar 2019.
According to the Global Macro Outlook 2020-21released on Friday, the 21-day lockdown announced by Prime Minister Narendra Modi would result in a sharp loss in incomes and further weigh on domestic demand and the pace of recovery.
Moody’s expects a sharp rebound in India’s growth in calendar 2021 to 5.8%.
Advanced economies are seen contracting 2% in 2020 against 1.7% growth in 2019 while emerging economies will slow to 1.9% from 4.2%.
China is forecast to grow 3.3% in 2020 against 6.1% in the previous year.
“A general lack of social safety nets, weak ability to provide adequate support to businesses and households, and inherent weaknesses in many major emerging market countries will amplify the effects of the coronavirus-induced shock,” Moody’s said.
India imposed a three-week nationwide lockdown to curb the spread of the coronavirus pandemic, starting March 25.
Moody’s said the lockdown will ‘dampen economic growth’ in India, already facing credit availability issues. “In India, credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and non-bank financial sectors,” it said.
Global Economy may Contract 0.5%
“An estimate of 2.5% is on the lower side as we do not expect a lockdown beyond Q1 (FY21), but it depends on the set of assumptions,” said Madan Sabnavis, chief economist at CARE Ratings. “In the absence of consumption demand, government spending along with the banking sector could be the main drivers in Q1.”
The Reserve Bank of India said Friday downside risks to growth arise from the spread of Covid-19 and prolonged lockdowns. The RBI announced a 75-basis point cut in the policy rate and a 100-bps cut in the cash reserve ratio for banks to inject liquidity in the system, while also imposing a moratorium on loan repayments for three months.
Finance minister Nirmala Sitharaman had on Thursday announced a Rs 1.7 lakh crore package for the poor, including cash transfers, free food grains and free cooking gas. “Since many European economies are contracting, India showing a positive growth, even of 2.5%, is still positive news, although the actual outcome will depend on how quickly the impact of Covid-19 is overcome,” said DK Srivastava, chief policy advisor at EY. “Most important would be a large fiscal stimulus package to supplement the monetary policy that was announced.”
Moody’s expects real GDP in the global economy to contract by 0.5% in 2020, followed by a pickup to 3.2% in 2021.
In November, the rating company had expected the global economy to grow by 2.6% this year.
“We have revised our global growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock, particularly in advanced economies, and the policy responses to combat the downturn are becoming clearer,” it said.
“Based on the latest high frequency indicators, we estimate that China’s economy contracted by around 10% in the first quarter on a sequential basis,” Moody’s said.
Although governments and regulators globally are taking measures to contain the impact on their economies, which are likely to grow and deepen, the downside risks to growth remain sizable, the report said.
Over the next few months, job losses will likely rise across countries, Moody’s said, adding that “the speed of the recovery will depend on to what extent job losses and loss of revenue to businesses is permanent or temporary.”
Even in countries that are in a position to provide support through large and targeted measures, some small businesses and vulnerable inpiduals in less-stable jobs will likely experience severe financial distress, it said.
Fiscal and monetary authorities are increasingly stepping up the level of support to their respective economies.
The rating company said it is impossible to accurately estimate the economic toll of this crisis due to several unknown factors.
“There are significant unknowns, such as how long the virus will take to be fully contained and, by extension, how long economic activity will remain disrupted,” it said.
( Originally published on Mar 27, 2020 )