Coronavirus impact: Moody's slashes India's growth outlook for 2020 to 5.3%

The global spread of the coronavirus (COVID-19) is resulting in simultaneous supply and demand shocks and will result in further slowing down of the global economic activity particularly in the first half of this year, Moody's investor services had said in its latest report.

The assessment is bad news for India that has already witnessed slowing down of its Gross Domestic Product (GDP) growth falling to 4.7 per cent in the third quarter of FY20.

According to Moody's Global Macro Outlook 2020-202l, the baseline growth for 2020 has been revised for all G-20 economies. Accordingly, these countries, as a group, are now expected to grow by 2.1% in 2020, 0.3 percentage point lower Moody's previous forecast.
 

The 2020 growth forecast for China has been lowered to 4.8% from our previous estimate of 5.2%., for US to 1.5% in 2020, down from our previous estimate of 1.7%.

For India the downside risks of COVID-19 are relatively lower with baseline growth forecast changing by mere 10 basis points from February assessment of 5.4% to 5.3%. Even in case of extensive slump, India's growth is projected to fall to 5%.

Moody's has said that global recession risks in wave of coronavirus spread have increased.

"The longer the outbreak affects economic activity, the demand shock will dominate and lead to recessionary dynamics. In particular, a sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics. Heightened asset price volatility would magnify the shock," it said in its report.

Previously, Moody's assessed the effects of the virus mainly on aggregate demand in China, global travel and global factory output resulting fro m disruptions in supply chains through East Asia. It is now clear that the s hock will additionally dampen domestic demand globally, which affect a wide r ange of non-traded activities across countries and regions simultaneously.

Moody's said that Fiscal and monetary policy measures will likely he lp limit the damage in individual economies. Policy announcements from fiscal authorities, central banks and international organisations so far suggest that policy response is likely to be strong in affected countries.

"The US Federal Reserve's decision to cut the federal funds rate by 50 basis points and the announcements from the European Central Bank and the Bank of Japan assuring policy support will limit global financial market volatility and partly counter the tightening of financial conditions."