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Coronavirus effect: Moody's slashes India's GDP growth to 5.3% for 2020

business news india

Global rating agency Moody's Investors Service on Tuesday slashed India's GDP growth estimate for 2020 calendar year to 5.3 per cent on coronavirus implications,  ongoing travel restrictions and heightened containment measures. The agency has projected a 5.8 per cent gross domestic product (GDP) growth for 2021.

In February, Moody's had lowered India's GDP growth to 5.4 per cent for 2020 from 6.6 per cent forecasted earlier, citing coronavirus implications on the economy.

India's GDP growth improved marginally to 4.7 per cent during the third quarter of 2019-20, from a 6-year low of 4.5 per cent during the July-September quarter. The National Statistical Office (NSO) has pegged India's economic growth for the current fiscal at 5 per cent - the lowest in 11 years - but it expects a recovery in FY21 when the economy is forecasted to grow at 6-6.5 per cent.

According to Moody's, there would be significant economic fallout from a more rapid and wider spread of the coronavirus. It said dampening of domestic consumption demand in affected countries exacerbate disruptions to supply chains and cross-border trade of goods and services.

"The longer the disruptions last, the greater the risk of global recession becomes," it said.

"A number of governments and central banks have announced countervailing measures, including fiscal stimulus packages, policy rate cuts, and regulatory forbearance; however, the effectiveness of policy easing will be blunted by measures to contain the outbreak, and policy space is constrained for some sovereigns," the agency added.

Moody's has also revised its forecasts for most Asia-Pacific (APAC) economies on coronavirus impact as well as the recent oil price shocks.

"Our baseline scenario assumes declining consumption levels and continuing disruptions to production and supply chains in the first half of 2020, followed by a recovery in the the second half of the year," says Christian de Guzman, a Moody's Senior Vice President.

"In the short run, this is playing out as both negative supply and demand shocks, and the longer the disruptions last, the greater the risk of a global recession," adds  Guzman.

Rising infection rates would further impede global sentiment, heightening asset price volatility and tightening financing conditions, which could snowball into a deeper economic contraction.

A number of governments have already announced measures to cope with the impact of the coronavirus, and Moody's expects there will be more fiscal stimulus as the extent of the economic fallout becomes clearer. However, some governments - mainly frontier markets - may be constrained by their high indebtedness and limited access to funding, it added.

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