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Moody's raises India's 2020 GDP forecast to -8.9% as Covid cases drop

India's economy had the biggest contraction, 24 per cent year-over-year in the second quarter

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GDP | GDP forecast | Coronavirus

ANI  |  New Delhi 

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Moody's Investors Service's baseline forecasts assume that difficulty in controlling the virus will hinder the gradual process of recovery in the short term

Moody's on Thursday raised India's forecast for the calendar year 2020 upwards to -8.9 per cent contraction from -9.6 per cent contraction forecast earlier. Similarly, India's forecast for the calendar year 2021 has been revised upwards to 8.6 per cent from 8.1 per cent projected earlier.

The report released by Moody's Investors Service attributed the reason behind better growth to the falling of cases in the country.

"The test positivity rate has fallen below 5 per cent in India and below 10 per cent in South Africa. Fatality rates have also steadily declined in most emerging market countries, similar to the trends in advanced economies. If these trends are sustained, greater mobility and social interactions will be likely over time. In addition, the development and dissemination of a vaccine will make the pandemic itself a less important macro factor in 2021 and 2022," the report stated.

India's economy had the biggest contraction, 24 per cent year-over-year in the second quarter, as a result of a long and strict nationwide

"Restrictions have eased only slowly and in phases, and localised restrictions in containment zones remain. As a result, the recovery has been patchy. The steady decline in new and active cases since September, if maintained, should enable further easing of restrictions. We, therefore, forecast a gradual improvement in economic activity over the coming quarters. However, slow credit intermediation will hamper the pace of recovery because of an already weakened financial sector," the report added.

It said the global economic recovery over the coming year will be highly dependent on the development and distribution of a vaccine, effective pandemic management as long as the virus remains a public health risk, and government policy support.

Moody's Investors Service's baseline forecasts assume that difficulty in controlling the virus will hinder the gradual process of recovery in the short term.

However, Moody's expects pandemic management will continue to improve over time, thereby reducing fear of contagion and allowing for a steady normalisation of social and economic activity. As a result, the virus is expected to become a less important macroeconomic concern throughout 2021 and 2022.

"The COVID-19 shock has triggered extraordinary fiscal policy responses from governments in advanced economies, including the US, Europe and Japan, facilitated by a large expansion of their central bank asset purchase programmes," says Moody's Vice President-Senior Credit Officer Madhavi Bokil.

"Looking ahead, we expect advanced economy central banks to actively hold down yields across all maturities and to expand asset purchases to include a wider range of assets if the economic backdrop remains difficult. For most emerging market countries, the scope for additional rate cuts is limited and we do not expect emerging market central banks to carry on with quantitative easing measures once the recovery strengthens," Bokil added.

The report said the pandemic will likely usher in new "secular shifts" that will reshape the global economy, politics and international institutional frameworks. These shifts will be the most visible in four ways: (1) an increase in populism and inward-looking policies in the event of a jobless recovery or a recovery that increases inequality, (2) geopolitical realignment, (3) a policy push for a "greener" economy, and (4) a technological transformation that could make a large number of jobs obsolete.

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First Published: Thu, November 12 2020. 13:59 IST
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