india gdp growth: Moody’s slashes India GDP growth in 2020 to 2.5%

Moody’s Investors Service has more than halved India’s 2020 growth forecast to 2.5% within just three week of its previous downgrade to 5.3%.

According to the Global Macro Outlook 2020-21 released 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.

“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.

The global ratings agency maintained its estimate of 5.8% growth for India in 2021.

The latest growth reduction of 2.2% is in sharp contrast to the previous downgrade of 0.1%. Earlier this month Moody’s had revised its estimate to 5.3% from 5.4% in February. It had said the country’s growth could slow down to 5% if the virus was not contained in its previous update.

Prior to the lockdown, S&P Global Ratings had downgraded its India growth forecast to 5.2% for 2020 while the Organisation for Economic Co-operation and Development (OECD) lowered India’s growth to 5.1% for this calendar year. More revisions are likely to come given the extent and duration of the lockdown.

Moody’s also sharply revised China’s growth forecast to 3.3% this year down from 4.8%. “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.

The ratings agency saw growth going into negative territory in major western economies with estimates of contractions of 5.4% in Germany, 4.5% in Italy, 4.3% in the US, 3.9% in the UK and 3.5% in France during the first half of 2020.

However, adequate social safety nets and capital inflows from risk-off sentiment in emerging markets would result in a relatively better recovery in these economies.

Moody’s expects G20 real gross domestic product (GDP) to contract by 0.5% in 2020 compared to a 2.6% growth forecast in November last year, before the emergence of Covid-19. Growth in these economies is likely to recover to 3.6% in 2021, the report said.

Although governments and regulators across the globe 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.