New Delhi: Amid growing concerns over the economic fallout of the novel coronavirus (Covid-19) outbreak, Moody’s Investors Service on Monday slashed its 2020 growth projection for India to 5.4% from 6.6% forecast earlier.
The agency expects a shallower recovery in Asia’s third-largest economy given that global growth will likely take a hit following the virus outbreak in China.
“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% for 2020 and 5.8% for 2021, down from our previous projections of 6.6% and 6.7%, 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.
In China’s Hubei province, the epicenter of the outbreak, about 1,933 new cases and 100 deaths were reported on 16 February, the lowest daily death count since 11 February.
Death toll in mailand China touched 1,770 as of the end of Sunday, with total confirmed cases at 70,548.
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% in 2020, a softer rate than last year, followed by a pickup to 2.8% in 2021. We have reduced our growth forecast for China to 5.2% in 2020 and maintain our expectation of 5.7% growth in 2021,” it added.
Moody’s assumes that the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2. “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.
For India, Moody’s said, a key to stronger economic momentum 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 (RBI) 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,” it added.