Ratings agency says fiscal, monetary policy steps will likely help limit damage in individual economies
Plan aims to offer financial help and link entrepreneurs with right people and resources
In less than a month, ratings agency Moody’s Investors Service revised its baseline growth projections for India from 5.4% to 5.3% in 2020, saying an extensive and prolonged slump as a result of the Covid-19 outbreak will reduce growth in Asia’s third-largest economy to 5% during the calendar year.
On 17 February, Moody’s had reduced India’s growth projection from 6.6% to 5.4% for 2020.
The latest revision, which is part of its Global Macro Outlook, said the global spread of the virus is resulting in simultaneous supply and demand shocks. “We expect these shocks to materially slow economic activity, particularly in the first half of this year. We have therefore revised our 2020 baseline growth forecasts for all G-20 economies. We expect these countries, as a group, to grow by 2.1% in 2020, 0.3 percentage point lower than our previous forecast," it added.
Moody’s also lowered its 2020 forecast for China to 4.8% from 5.2%. For the US, it now expects real GDP to grow by 1.5% in 2020, down from the previous estimate of 1.7%.
Last week, the OECD had slashed India’s growth forecast for 2020-21 by 110 basis points to 5.1%, saying the adverse impact of Covid-19 on confidence, financial markets, travel and supply chains could shave 50 bps off global growth this year. The virus outbreak could cost the Indian economy between $387 million and $29.9 billion in personal consumption losses, the Asia Development Bank said last Friday.
The spread of Covid-19 over the past few weeks has resulted in significant economic fallout, which is severely hampering not only trade and supply chains, but depressing domestic consumption demand in affected countries and around the world, Moody’s said.
“Our baseline forecasts assume that the global efforts to arrest the spread of the virus and, perhaps, warmer weather in the Northern Hemisphere in the spring and summer, will allow economic activity to pick up in the second half of the year. Accordingly, these forecasts incorporate a pullback in consumption in the first half of the year followed by a moderate recovery in the second half. Our forecasts also assume ongoing disruption to production and supply chains through the first half. However, the evolution of the virus remains highly uncertain and the full extent of the economic costs will be unclear for some time. Fear of contagion will significantly affect consumer behaviour. The economic impact will magnify the longer it takes for households and businesses to resume normal activity," the ratings agency cautioned.
Moody’s said risks of a global recession have risen. “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."
It further said that fiscal and monetary policy measures will likely help limit the damage in individual economies.
“Policy announcements from fiscal authorities, central banks and international organizations 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," Moody’s said.
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