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Home / News / India /  Moody’s revises India 2020 GDP forecast, sees 8.9% contraction vs 9.6% earlier

Moody’s Investors Service has revised India’s GDP forecast upwards for calendar year 2020 to -8.9% contraction from -9.6% contraction forecasted earlier. Similarly, India’s GDP forecast for calendar year 2021 has been revised upwards to 8.6% from 8.1% projected earlier. GDP forecasts are for calendar years.

The Indian economy had contracted a hefty 23.9% in the April-June quarter and is seen contracting over 10% in the fiscal year to March 2021 as a result of a long and strict nationwide lockdown due to the coronavirus pandemic.

"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," Moody's said.

Finance minister Nirmala Sitharaman today citied the Moody's forecast to underline the economic recovery taking place in Indian economy.

"There is strong recovery in economy; active COVID-19 cases have declined," the finance minister said. "Quite a few indicators showing a distinct recovery in the economy."

Moody's however noted that the scope for additional rate cuts is limited in most emerging market countries, including India.

"We do not expect emerging market central banks to carry on with quantitative easing measures once the recovery strengthens. This is because emerging market central banks with credible inflation targeting regimes are acutely aware of the risks of losing credibility and unanchoring of inflation expectations, associated with deficit financing," Moody's said.

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

Moody’s notes 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 normalization of social and economic activity. As a result, the virus is expected to become a less important macroeconomic concern throughout 2021 and 2022, it says.

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