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Coronavirus Impact: Fitch Cuts Growth Forecast To 5.1% For FY21

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Coronavirus Impact: Fitch Cuts Growth Forecast To 5.1% For FY21
Yagnesh Kansara - 20 March 2020

Mumbai: All the forecast process for the future growth of Indian economy has gone awry as a result of the impact of Coronavirus pandemic. Fitch Ratings on Friday cut India's growth forecast to 5.1 per cent for FY 2020-21, saying the coronavirus outbreak is likely to hit business investment and exports. Brokerage Bank of America (BofA) Securities and credit rating firm CRISIL cut India’s growth forecast on Thursday, in light of the COVID-19 pandemic.

While BofA has sharply cut India’s June quarter growth forecast by 90 bps to a low of 3.1 per cent and the full-year FY21 GDP target by 100 bps to 4.1 per cent, CRISIL said the pandemic will leave the economy crippled next fiscal year pulling down the growth to a low of 5.2 per cent.
Fitch had in December 2019 projected India's growth at 5.6 per cent for 2020-21 and 6.5 per cent in the following year. C|RISIL had earlier forecast the GDP printing in a 5.7 per cent expansion. The report from economists at BofA comes just a day after they slashed their full-year FY21 forecast by 80 bps to 5.1 per cent.

In its Global Economic Outlook 2020, Fitch said the number of people affected by coronavirus will keep rising in the coming weeks but that the outbreak will remain contained. However, there are downside risks to this scenario. "Supply-chain disruptions are expected to hit business investment and exports. We see GDP growth to remain broadly steady at 5.1 per cent in the fiscal year 2020-2021 following growth of 5.0 per cent in 2019-2020," Fitch stated.

For 2021-22, Fitch projected India's growth to be 6.4 per cent. "The outbreak of the virus is hitting sentiment, while local governments have rolled out measures to contain the spread of the virus, such as closing schools, cinemas and theatres. While India's linkages with China (e.g. trade and tourism) are modest, manufacturers in India are heavily reliant on key Chinese intermediate inputs especially of electronics and machinery and equipment," Fitch said.

The World Health Organisation has declared coronavirus a pandemic. Over two lakh people have been infected globally and it has claimed over 9,000 lives. In India, till now, around 195 positive cases have been reported and the deadly virus has already claimed four lives so far.
The difficulties facing the Indian economy have been exacerbated by YES Bank failure, Fitch mentioned in its report.

"Fragilities in the financial system will further undermine sentiment and domestic spending. The overall financial system remains burdened with weak balance sheets, which will limit any upside to credit and growth despite policymakers' efforts in recent months to ease stresses, adds the global credit rating agency.

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