Moody's Investors Service on Friday halved its estimate of India's GDP growth for calendar year 2020 to 2.5 per cent from an earlier estimate of 5.3 per cent, citing rising economic cost of the coronavirus pandemic. That was sharply lower compared to the growth rate of 5 per cent in 2019. The fresh cut comes within three weeks of its previous downgrade to 5.3 per cent.
Moody's said that at the 2020 estimated growth rate, a sharp fall in incomes in India is likely, further weighing on domestic demand and the pace of recovery in 2021."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.
The latest growth reduction of 2.2 per cent is in sharp contrast to the previous downgrade of 0.1 per cent. Earlier this month Moody’s had revised its estimate to 5.3 per cent from 5.4 per cent in February. It had said the country’s growth could slow down to 5 per cent if the virus was not contained in its previous update.
According to Moody's Global Macro Outlook 2020-21 released on Friday, the 21-day lockdown announced by Prime Minister Narendra Modi would have severe economic costs. “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,” the report said.
At the same time, the global ratings agency maintained its estimate of 5.8 per cent growth for India in 2021.
Prior to the lockdown, S&P Global Ratings had downgraded its India growth forecast to 5.2 per cent for 2020 while the Organisation for Economic Co-operation and Development (OECD) lowered India’s growth to 5.1 per cent for this calendar year. More revisions are likely to come given the extent and duration of the lockdown.
Further, Moody's said the G-20 economies would experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021.
The ratings agency also slashed the growth forecast of China to 3.3 per cent in 2020, followed by 6 per cent growth in 2021. “Slow improvement in consumer demand will temper the pace of China's (A1 stable) recovery."
