BUSINESS

Moody’s cuts India GDP forecast; ‘demand, credit growth critical’

Improved indicators indicate economy may have stabilised

Moody’s has revised its growth forecasts for India downward to 5.4% for 2020 and 5.8% for 2021, from its previous projections of 6.6% and 6.7%, respectively.

It has also revised its global GDP growth forecast down, given the adverse impact of the coronavirus on the world economy.

“We we now expect G-20 economies to collectively grow 2.4% in 2020, a softer rate than last year, followed by a pick-up 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,” it said.

Moody’s also lowered growth projections for Mexico and South Africa, as it has for India, as a reflection of domestic challenges in these countries rather than external factors.

On India, it said that the economic recovery would likely be shallow. “India’s economy has decelerated rapidly over the last two years. Improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilised,” 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,” 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 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 [RBI],” it said.

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