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Moody's cuts India's 2020 growth forecast to 5.4%

18 Feb '20
3 min read
Pic: Shutterstock
Pic: Shutterstock

Growing concerns over the economic fallout of the coronavirus outbreak has led Moody's Investors Service to slash its 2020 growth projection for India to 5.4 per cent from 6.6 per cent earlier. The rating agency expects a shallower recovery in India as global growth is expected to take a hit following the outbreak. It also reduced its global growth projection, saying the outbreak has diminished optimism about prospects of an incipient stabilisation of global growth this year.

"Improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilized. While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected.

Accordingly, we have revised our growth forecasts to 5.4 per cent for 2020 and 5.8 per cent for 2021, down from our previous projections of 6.6 per cent and 6.7 per cent respectively," it said.

With the virus continuing to spread, it is still too early to make a final assessment of the impact on China and the global economy, Indian media reports cited Moody’s as saying.

"We have revised our global GDP [gross domestic product] growth forecast down, and we now expect G-20 economies to collectively grow 2.4 per cent in 2020, a softer rate than last year, followed by a pickup to 2.8 per cent in 2021. We have reduced our growth forecast for China to 5.2 per cent in 2020 and maintain our expectation of 5.7 per cent growth in 2021," it added.

Moody's assumes that the spread of the coronavirus will be contained by the end of the first quarter, allowing for resumption of normal economic activity in the second.

"At present, China's economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains. The effects on the global economy could compound if the rate of infection does not abate and the death toll continues to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy," it said.

For India, Moody's said, a key to stronger economic momentum would be the revival of domestic demand, both rural and urban. But equally important is the resumption of credit growth in the economy, it cautioned.

"As data from the Reserve Bank of India (RBI) shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks. The deterioration in credit growth to the commercial sector is particularly stark," it added.

Fibre2Fashion News Desk (DS)

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