Moody's projects India GDP to shrink 3.1% in 2020, flags geopolitical risk

However, Moody's expects the Indian economy to register 6.9 per cent growth in 2021

Moody's Investors Service on Monday projected the Indian economy to shrink 3.1 per cent in 2020 and said clashes with China on the border also suggest rising geopolitical risks in the Asian region where countries are particularly vulnerable to changes in geopolitical dynamics.

While it pegged India's annual growth at 0.2 per cent in April, the forecast has been sharply revised after taking into consideration the disruptions due to the coronavirus pandemic.

However, Moody's expects the economy to register 6.9 per cent growth in 2021.In its June update to Global Macro Outlook (2020-21), Moody's said it has revised down its 2020 growth forecast for India as incoming data show the extent of coronavirus-related disruption in January-March and April-June quarters.

"April-June quarter of 2020 will go down in history as the worst quarter for the global economy since at least World War II. We continue to expect a gradual recovery beginning in the second half of the year, but that outcome will depend on whether governments can reopen their economies while also safeguarding public health," Moody's said.

Moody's has forecast that China would be the only G-20 country to post growth this year. The expectation is that China would grow 1 per cent in 2020, followed by a strong rebound of 7.1 per cent in 2021, it added.

According to Moody's, a rebound in demand would determine the ability of businesses and labour markets to recover from the shock.

"Asian countries are particularly vulnerable to changes in geopolitical dynamics. The rise in tensions between China and countries bordering the South China Sea and clashes on the border with India suggest that geopolitical risks are rising for the entire region," it said.

Last week, 20 Indian army personnel, including a Colonel, were killed in a violent confrontation with Chinese troops in the Galwan Valley in eastern Ladakh, which has increased border tensions between the two countries.

Moody's expect G-20 economies to contract by 4.6 per cent in 2020 as a whole, followed by 5.2 per cent growth in 2021.

Earlier this month, Moody's had cut India's credit rating by a notch to lowest investment grade 'Baa3' citing challenges in implementing policies to boost growth and restrict fiscal slippage.