S&P slashes India’s 2020 growth outlook to 5.2% amid virus fears

Standard and Poor’s (S&P) on Wednesday slashed its 2020 growth projection for India from 5.7% to 5.2%, as it fears that the Asia Pacific region may slide into recession as countries implement strict lock-downs to contain the Covid-19 pandemic.

Moody’s and Organisation for Economic Cooperation and Development (OECD) had recently cut their growth projections for India to 5.3% and 5.1%, respectively, for 2020.

In its report for the Asia Pacific, S&P said loss of household and business confidence in the economies of the region will translate into severe and persistent supply and demand shocks, and trigger rising joblessness.

“Domestic demand will be hit almost everywhere by restrictions on movement and risk aversion,” it added.

Asia’s export engine is likely stall as few economies in the region will be spared by weaker demand in the US and Europe, S&P said.

The rating agency said 2.8% and 4.2% of India’s economy is exposed to final demand from the US and EU, which is larger than China’s share, making it more vulnerable to demand slump in developed economies.

As the global count of the infected crossed 200,000, S&P said the key uncertainty remains virus transmission.

“Our baseline global scenario, founded on expert scientific opinion and subject to high uncertainty was that the world would come to grips with the coronavirus at some point during the second quarter of 2020. We will review that baseline before fleshing out a new round of forecasts.”

The rating agency has cut its growth forecast for China from 4.8% to 2.9% for 2020. “We now expect China’s economy to shrink by 10% during the first quarter over the same period a year-ago,” it added.

The timing of a recovery depends, most of all, on the progress in containing the viral spread, the rating agency said.

“Even if major progress is made during the second quarter, after a sustained period of stressed cash flow many firms will be in no position to resume investing quickly. Households that have either lost their jobs or have worked fewer hours will spend less. Banks will be managing the deterioration in asset quality.”

Separately, Fitch Ratings on Wednesday cautioned that the economic impact of the coronavirus is likely to result in a more pronounced downward bias in sovereign rating changes than in any year since the global financial crisis of 2008.

“Sovereigns’ fiscal records will be one component of our assessment of the credit impact of supplementary fiscal measures. The intent will be to evaluate whether temporary—and in many cases, urgent—fiscal measures introduced to counter the impact of the coronavirus will have public finance implications that last through the medium term,” the rating agency said without naming any country.

It added that traditional macroeconomic policies will have limited effects on curtailments motivated by health concerns, but can have a role in softening the consequent impact on household and corporate income streams, preventing a more marked and extended economic decline.

“Fitch expects that, over time, fiscal policy responses will come to match those already underway on the monetary side, at least in terms of the number of countries engaged,” it added.