Moody’s Effects Sharp Cut In India GDP Growth Forecast For 2020 And 2021

Moody's Investors Service has cut India's GDP growth forecast to 5.4 percent for 2020 from 6.6 percent projected earlier on slower-than-expected recovery.

The Indian economy has decelerated rapidly over the last two years but the economic recovery is likely to begin in the current quarter, Moody’s said in the latest update to its Global Macro Outlook.

“We expect any recovery to be slower than we had previously expected. Accordingly, we have revised our growth forecasts to 5.4 percent for 2020 and 5.8 percent for 2021, down from our previous projections of 6.6 percent and 6.7 percent, respectively,” the ratings agency said.

The growth projections are based on calendar year and according to Moody’s estimates, India had a GDP growth rate of 5 percent in 2019.

With a weak economy and depressed credit growth reinforcing each other, Moody's said “it is difficult to envision a quick turnaround of either, even if economic deceleration may have troughed”.

On the fiscal front, it said, the Union Budget 2020-21 did not contain a significant stimulus to address the demand slump. “As similar policies in other countries have shown, tax cuts are unlikely to translate into higher consumer and business spending when risk aversion is high,” it said.

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Moody's said it expects additional easing by the Reserve Bank of India. But if the recent rise in CPI-based retail inflation—mainly as a result of higher food prices—is seen to have second-round effects, this would make it more challenging for RBI’s monetary policy committee to cut interest rates further, it added.

With regard to global growth, Moody's said the coronavirus outbreak has diminished optimism about prospects of an incipient stabilization of global growth this year.

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Global GDP growth forecast has been revised down. Moody's now expects G-20 economies to collectively grow at 2.4 percent in 2020, a softer rate than last year, followed by a pickup to 2.8 percent in 2021.

“We have reduced our growth forecast for China to 5.2 percent in 2020 and maintain our expectation of 5.7 percent growth in 2021,” it added.