Economy

Moody’s revises global GDP forecast down following spread of COVID-19

People pass by a poster about precautions against the illness COVID-19 on a street in Seoul, South Korea, on February 12.

People pass by a poster about precautions against the illness COVID-19 on a street in Seoul, South Korea, on February 12.   | Photo Credit: AP

Agency has also reduced growth projections for India, owing to domestic challenges

Moody’s has revised its global GDP growth forecast down considering the adverse impact of COVID-19 on the world’s economy.

“We have revised our global GDP growth forecast down, and we now expect G-20 economies to collectively grow 2.4% in 2020, a softer rate than last year, followed by a pickup to 2.8% in 2021,” Moody’s said in a report.

“We have reduced our growth forecast for China to 5.2% in 2020 and maintain our expectation of 5.7% growth in 2021. We have also lowered our real GDP growth forecast for Australia, Korea and Japan on account of the coronavirus,” it said.

Also read: Coronavirus | death toll in China reaches 1,765, says govt.

Additionally, it has reduced its growth projections for India, Mexico and South Africa, a reflection of domestic challenges in those countries rather than external factors.

 

Stating that the coronavirus outbreak had diminished optimism about prospects of an incipient stabilisation of global growth this year, Moody’s said since the virus was continuing to spread, it was still too early to make a final assessment of the impact on China and the global economy.

“Our baseline assumes the outbreak will cause disruption in Q1 economic activity. Under our baseline forecast, the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2,” it said.

At present, China’s economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains, the rating agency said.

The effects on the global economy could compound if the rate of infection did not abate and the death toll continued to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy, it added.

On the impact on India, it said that the economic recovery will likely be shallow.

“India’s economy has decelerated rapidly over the last two years. Real GDP grew at a meagre 4.5% in Q3 2019. Improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilized,” it said.

“While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected. Accordingly, we have revised our growth forecasts to 5.4% for 2020 and 5.8% for 2021, down from our previous projections of 6.6% and 6.7%, respectively,” it added.

A key to stronger economic momentum would be the revival of domestic demand, both rural and urban. But equally important is the resumption of credit growth in the economy, Moody’s said.

“As data from the Reserve Bank of India (RBI) shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks. Banks have been both unwilling to lend and to lower lending rates despite successive interest rate cuts by the central bank,” it said.

“ As a result, non-food bank credit growth decelerated to 7.0% in nominal terms in December 2019, down sharply from 12.8% a year earlier. The deterioration in credit growth to the commercial sector is particularly stark,” it added.

Nominal credit to industry grew at only 1.6% year-on-year in December 2019, while credit to the services sector registered 6.2% nominal growth, and credit to agriculture and related activities grew 5.3%, Moody’s said.

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Printable version | Apr 9, 2020 5:43:08 PM | https://www.thehindu.com/business/Economy/moodys-revises-global-gdp-forecast-down-following-spread-of-covid-19/article30840489.ece

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