Moody's lowers India's GDP growth forecast to 5.4pc

In its February update titled 'Global Macro Outlook 2020-21', the international rating agency said that India’s economic recovery will likely be shallow.

It said that India’s economy has decelerated rapidly over the last two years. Real GDP grew at a 4.5 per cent in the third quarter (October-December) of 2019-20.

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

"As data from the Reserve Bank of India 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," the agency said.

The agency expects a shallower recovery in Asia's third-largest economy given that global growth will likely take a hit.

"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.

Moody's also reduced its global growth projection, saying that the coronavirus outbreak has diminished optimism about prospects of an incipient stabilization of global growth this year.
Moody’s lowers GDP growth rate for 2020 to 5.4 per cent.

The rating agency 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.
''We have revised our global GDP 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% growth in 2021,'' the report maintained.

Moody's assumed that the spread of the coronavirus will be contained by the end of Quarter 1, allowing for resumption of normal economic activity in Quarter 2.

"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.