Moody's Slashes India GDP Growth Forecast For 2020 To 2.5%

Moody's Investors Service slashed its estimate of India's GDP growth during calendar year 2020 to 2.5 per cent, from an earlier estimate of 5.3 per cent, saying that the coronavirus pandemic will cause unprecedented shock to the global economy.

In its Global Macro Outlook 2020-21, Moody's said that India is likely to see a sharp fall in incomes at the estimated growth rate of 2.5 per cent, further weighing on domestic demand and 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.

With the latest growth forecast, Moody's Investors Service has more than halved the country's growth forecast for 2020 within a span of 3-4 weeks. Last time around, the rating agency had revised its growth estimate from 5.4 per cent to 5.3 per cent. The global ratings agency, however, maintained its estimate of 5.8 per cent growth for India in 2021.

Earlier this week, India imposed a three-week long nationwide lockdown, the most far-reaching measure undertaken by any government to curb the spread of the coronavirus pandemic that has killed at least 17 people in the country so far.

The lockdown has resulted in closure of businesses as well as factories and temporary unemployment for thousands of workers. The lockdown followed suspension of train, flight and long distance bus services last week.

The number of deaths around the world linked to the new coronavirus has crossed over 24,000. In India, over 700 coronavirus cases have been reported so far.

Moody's said the global economy will contract in 2020, followed by a pickup in 2021. "We have revised our global growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock, particularly in advanced economies, and the policy responses to combat the downturn are becoming clearer," it said.

Moody's now expects real GDP in the global economy to contract by 0.5 per cent in 2020, followed by a pickup to 3.2 per cent in 2021.

"Our forecasts reflect the severe curtailment of economic activity in recent days as the coronavirus has spread throughout the world," it said. "Lockdowns and other social distancing measures have expanded throughout advanced and emerging market countries."

There will be severe compression in demand over the next two to four months and the widespread loss of income for businesses and individuals will have a multiplier effect throughout the global economy.

"Over the next few months, job losses will likely rise across countries," Moody's said, adding "the speed of the recovery will depend on to what extent job losses and loss of revenue to businesses is permanent or temporary."

The government announced a Rs 1.7 lakh crore package on Thursday, including free foodgrains and cash to poor, for the next three months in an attempt to cushion them from the economic fallout of the coronavirus pandemic.

The Reserve Bank of India Governor Shaktikanta Das also announced a slew of measures to counter the economic fallout of the coronavirus-induced 21-day lockdown and bolster the financial health of the economy. Mr Das slashed the key lending rate by 75 basis points, cut the reverse repo rate by 90 basis points to 4 per cent and reduced the cash reserve ratio by 100 basis points, and permitted all commercial banks and lending institutions to allow a three-month moratorium on all loans.