Moody’s narrows 2020 GDP contraction to 8.9%

Representational image.   | Photo Credit: Reuters

Rating agency Moody’s Investors Service has revised upward its forecast for India’s GDP for calendar year 2020 to an 8.9% contraction from its earlier projection for a contraction of 9.6%.

Similarly, India’s GDP forecast for calendar year 2021 has been revised upwards to 8.6% growth from the 8.1% projected earlier, the agency said in its latest global macro outlook report released on Thursday.

“India’s economy had the biggest contraction, 24% year-over-year in the second quarter, as a result of a long and strict nationwide lockdown. Restrictions have eased only slowly and in phases, and localised restrictions in containment zones remain. As a result, the recovery has been patchy,” Moody’s noted in its report titled ‘Nascent economic rebound takes hold globally but recovery will remain fragile’.

If the steady decline in new and active COVID-19 cases since September is maintained, further easing of restrictions may help, Moody’s said. “We therefore forecast a gradual improvement in economic activity over the coming quarters. However, slow credit intermediation will hamper the pace of recovery because of an already weakened financial sector,” it warned.

Rate cut scope limited

Moody’s vice president-senior credit officer Madhavi Bokil said that the scope for additional rate cuts was limited in most emerging market economies (including Brazil, India and Indonesia), and that she did not expect emerging market central banks to carry on with quantitative easing measures once the recovery strengthens.

The agency stressed that geopolitical and trade risks would remain a key focus in the year ahead as the relationship between the U.S. and China, had deteriorated. “Moody’s does not believe that the Biden administration would differ materially with regard to these issues,” it said.

“For other countries, the pandemic shock has also led to both economic and national security concerns about supply-chain vulnerabilities and economic dependencies. The emphasis of various governments on shoring up domestic productive capacities can also be viewed as an attempt to reduce their co-dependence on the global economy.”

Overall, G-20 economies were expected to collectively contract 3.8% in 2020, followed by 4.9% growth in 2021 and 3.8% growth in 2022, Moody’s said, stressing that its baseline forecasts assumed that difficulty in controlling the virus would hinder the gradual process of recovery in the short term.

The agency expects pandemic management to improve over time, allowing for steady normalisation of social and economic activity. Hence, the virus is expected to become a less important macroeconomic concern throughout 2021 and 2022, it said.

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Printable version | Jan 17, 2021 9:14:52 PM |

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