Moody’s Investor Service (Moody’s) has slashed its economic growth forecast for India to 2.5 per cent for calendar year 2020 (CY20) even as it expects the growth to bounce back to 5.8 per cent in 2021 (CY21). At the global level, it expects a GDP growth of negative 0.5 per cent in CY20, before bouncing back in CY21.
The downward revision in growth rates for CY20 comes in the backdrop of coronavirus (Covid-19) pandemic that has paralysed economic activity not only in India, but across the globe. Moody's expects the growth in G-20 economies to experience an unprecedented shock in the first half of 2020 and contract as a whole, before picking up in 2021.
“We have revised our growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock and the policy responses to combat the downturn are becoming clearer. We now expect G-20 real GDP to contract by 0.5 per cent in 2020, followed by a pickup to 3.2 per cent growth in 2021,” Moody’s said in a note. In November last year, before the emergence of the coronavirus, it had pegged the growth rate for G-20 economies at 2.6 per cent in 2020. (See table below)
That said, the agency expects policy measures to continue to grow and deepen, as the consequences of the shock in terms of depth and duration become clearer. However, downside risks to growth remain sizable, Moody's said.
“The severe compression in demand over the next two to four months will likely be unprecedented, as China's data for the months of January and February reveal. Also, as expected, purchasing managers' index indicators for the euro area confirm a sharp contraction is already underway. Moreover, the widespread loss of income for businesses and individuals across countries will have a multiplier effect throughout the global economy,” Moody's said.
Over the next few months, Moody's expects job losses across countries to accelerate. The speed of the recovery, it believes, will depend to what extent job losses and loss of revenue to businesses is permanent or temporary.
“Even in countries where governments are in a position to provide support through large and targeted measures, some small businesses and vulnerable individuals in less-stable jobs will likely experience severe financial distress,” it said.
Strong bounce back in China
The agency has pegged China's real GDP growth at 3.3 per cent in 2020, followed by a strong rebound of 6 per cent growth rate in 2021. In the other emerging market (EM) countries, a sharp reduction in GDP in the second quarter is also inevitable, Moody's says, especially where strict containment measures have been imposed.
That said, the agency believes the recovery in EMs will be relatively more muted than in advanced economies as a general lack of social safety nets, a weaker ability to provide adequate support to businesses and households, and inherent weaknesses in many of the major EMs is likely to amplify the impact of the shock.