Moody’s Investors Service on Tuesday lowered India’s GDP growth forecast for 2020 calendar year to 5.3 per cent, on coronavirus implications on the economy. Moody’s had in February projected a 5.4 per cent real GDP growth for India in 2020. This too was a downgrade from 6.6 per cent earlier forecast. The 5.3 per cent real GDP growth forecast for 2020 compares to 5.3 per cent growth estimate for 2019 and 7.4 per cent achieved in 2018.
Stating that there was significant economic fallout from more rapid and wider spread of the coronavirus, the rating agency on Tuesday said dampening of domestic consumption demand in affected countries exacerbates 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. Moody’s forecast a 5.8 per cent growth rate for India in 2021. “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,” it said. Also, tighter funding conditions and exchange rate depreciation could stress sovereigns with high foreign currency exposure, heavy reliance on external market funding or low foreign currency reserve coverage, it said.
Moody’s said oil price shock adds to growth and fiscal pressures for exposed sovereigns. “A period of lower oil prices will further weigh on the economic and fiscal fundamentals of oil exporters, while mitigating the trade shock for importers.”
Meanwhile, Moody’s Investors Service has said that global spread of new coronavirus (Covid-19) will significantly slow economic growth, which will in turn amplify its financial impact on several key free movement-driven sectors. “Sectors reliant on trade and the free movement of people are most exposed, such as passenger airlines, shipping, and lodging and leisure, which includes cruise lines and restaurants,” Vice President - Senior Credit Officer - Benjamin Nelson at Moody’s said in a statement. Global automakers are also under great pressure because of their reliance on international supply chains, while gaming and non-food retail in certain regions are also exposed to supply chain disruptions, and the inevitable decline in foot traffic. “Companies’ ability to withstand the effects of the virus will depend on its duration, and we caution that as events unfold very rapidly on a daily basis, our assessment of exposure will change over time,” another Vice President - Senior Credit Officer - at Moody’s Richard Morawetz said. Moody’s assessment is based on its baseline scenario, which assumes a normalisation of economic activity in the second half of the year, and the ability of some companies to withstand the effects of the virus will depend on its duration.
The agency’s downside scenario factors in a jump in cases and public fear that the virus will not be contained in the first half of 2020, leading to extensive and prolonged travel restrictions and quarantines, along with a prolonged slump in commodity prices. The number of deaths around the world linked to Covid-19 has topped 7,000, after Italy announced a new surge in fatalities, with over 1,75,000 infections recorded globally so far. In India, the number of infected cases stood at 125, as per union health ministry log.