Global credit rating agency Moody’s Investors Service on Friday slashed its estimate of India’s economic growth forecast for the year from the previous estimate of 5.3% to 2.5% due to the rising economic cost of the coronavirus pandemic, reported PTI.
The firm, in its Global Macro Outlook report, said India was likely to see a sharp fall in incomes at the estimated 2.5% growth rate. This compares to 5% growth in 2019.
“In India, credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and non-bank financial sectors,” the agency said. “We have revised our global growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock, particularly in advanced economies, and the policy responses to combat the downturn are becoming clearer.”
Moody’s also predicted that the global economy will contract by 0.5% in 2020, followed by a pickup to 3.2% in 2021. “Our forecasts reflect the severe curtailment of economic activity in recent days as the coronavirus has spread throughout the world,” it said. “Lockdowns and other social distancing measures have expanded throughout advanced and emerging market countries. Financial sector volatility has exploded to levels last seen during the 2008 global financial stress, despite the expectation of rapid policy response from major central banks and governments.”
The firm also said global job losses from the coronavirus crisis is likely to increase. “The speed of the recovery will depend on to what extent job losses and loss of revenue to businesses is permanent or temporary,” it added.
Moody’s said central banks are taking actions aimed at ensuring ample liquidity in the financial system. “For central banks, limiting the duration of the shock to one or two quarters is also imperative to prevent it from manifesting into a banking or broader financial sector crisis,” it said.
Earlier in the day, the Reserve Bank of India slashed interest rates by 75 basis points to 4.4%, following other central banks, to counter the economic fallout from the coronavirus pandemic.
The rating agency said it was impossible to accurately estimate the economic toll of the crisis. “There are significant unknowns, such as how long the virus will take to be fully contained and, by extension, how long economic activity will remain disrupted,” it said.
Prime Minister Narendra Modi had on Tuesday imposed a nationwide lockdown from midnight for 21 days to contain the spread of the coronavirus. India has so far reported 724 confirmed cases of the coronavirus and 17 deaths. The lockdown has led to supply constraints for essential items and panic buying, leaving the poor and daily labourers most vulnerable.
To ease the economic pain, Finance Minister Nirmala Sitharaman had on Thursday announced a Rs 1.70 lakh crore relief package that provides direct cash transfers and food security measures.
India’s economic growth slipped to a nearly seven-year low of 4.7% in the October-December quarter because of continued slump in manufacturing. The figures released by the government in February made significant revisions to the estimates for the previous two quarters. For the July-September 2019 quarter, the economic growth was revised upwards to 5.1% from 4.5% estimated earlier. Similarly, the April-June growth was revised upwards to 5.6% from 5%. This meant the growth in October-December was the lowest in 27 quarters.