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Photo: Bloomberg
Photo: Bloomberg

Covid-19 impact: Moody's slashes India growth forecast to 0.2% for 2020

  • The rating agency had projected 2.5% growth in March
  • Moody’s said while the shape and magnitude of the initial shock is similar across economies, the recovery is likely to be more drawn out in some countries than others

Rating agency Moody’s Investors Service on Tuesday slashed its 2020 growth forecast for India to 0.2% from 2.5% earlier holding that the economic costs of coronavirus crisis amid the near shutdown of the global economy are accumulating rapidly.

“There are significant downside risks to our forecasts in the event that the pandemic is not contained and lockdowns have to be reinstated. Even without longer-duration lockdowns, a self-perpetuating dynamic could take hold, resulting in large-scale destruction of businesses and entire sectors, as well as a structurally high unemployment rate, a permanent loss of human capital, and persistent malaise in consumption and investment," the rating agency said in its Global Macro Outlook update.

The rating agency has projected China to grow at 1% in 2020, partially reflecting a revival in demand from its trading partners.

Moody’s said while the shape and magnitude of the initial shock is similar across economies, the recovery is likely to be more drawn out in some countries than others. “In particular, countries with weak economic fundamentals are likely to come out of this crisis with permanently depressed growth potential. Many emerging market countries fall in this category. Recovery is also likely to be uneven across sectors as the fear of contagion will likely alter consumer behavior even after restrictions on business activity and mobility are lifted," it added.

Among G-20 emerging market economies, Moody’s said only India, South Africa and Argentina have taken strict lockdown measures so far. “While the stringent measures will cause a severe contraction in second-quarter activity, they are also successfully flattening the curve," it added.

Moody’s said India extended a nationwide lockdown to 40 days from 21 days, but relaxed restrictions in rural areas to facilitate agricultural harvesting in the second half of April. “The country has determined that many of these areas are free of the virus. India also plans a phased opening of different regions while continuing to carry out identification and contract tracing. We expect the governments of South Africa and Argentina to take a similarly measured approach to relaxing constraints," it said.

Holding that fiscal and monetary authorities have stepped up the level of support to their economies across advanced and emerging market countries, Moody’s said in India, the central bank has stopped short of quantitative easing. “However, it has cut interest rates and the liquidity coverage ratio, and it plans to undertake targeted long-term repo operations to support liquidity for small and medium-sized non-bank finance companies," it added.

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