Amid Concerns Over Coronavirus Moody’s Slashes India’s Growth Outlook To 5.3%

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Amid Concerns Over Coronavirus Moody’s Slashes India’s Growth Outlook To 5.3%
Aparajita Gupta - 09 March 2020

New Delhi, March 9: Moody’s Investors Service has revised its global macro outlook and its baseline growth forecasts for all G20 economies. It has also slashed India’s growth forecast from 5.4 per cent in February to 5.3 per cent now for 2020.

“We have therefore revised our 2020 baseline growth forecasts down for all G-20 economies. With these revisions, we now expect the global economy to grow by 2.1 per cent in 2020, 0.3 percentage point lower than our previous forecast. We expect that disruptions to a broad range of economic activities will slow economic growth in a large number of countries, particularly in the first half of this year,” Moody’s said in its latest report.

The coronavirus outbreak has spread rapidly outside China to a number of major economies. It now seems certain that even if the virus is steadily contained, the outbreak will dampen global economic activity well into Q2 of this year.

“Several plausible developments could lead to a far more negative scenario than our baseline forecast,” said Moody’s Vice President Madhavi Bokil. “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.”

Furthermore, heightened asset price volatility would also result, serving to magnify and transmit the shock across borders, including to emerging market countries. Currently, uncertainty remains unusually high.

Policy announcements from fiscal authorities, central banks and international institutions so far suggest that policy response is likely to be strong and targeted in affected countries. Targeted fiscal policy measures will likely help limit the damage in individual economies.

Moody’s also expects central banks to adopt an easier stance, reinforcing fiscal measures. 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 partially limit global financial market volatility and partly counter the tightening of financial conditions.

“We have lowered our 2020 forecast for China's growth to 4.8 per cent from our previous estimate of 5.2 per cent. For the US, we now expect real GDP to grow by 1.5 per cent in 2020, down from our previous estimate of 1.7 per cent,” the report stated.

“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,” it added.

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