Current Affairs

India’s growth outlook for 2020 slashed to 5.3% by Moody’s

India’s growth outlook for 2020 slashed to 5.3% by Moody’s

Coronavirus Impact on Economy: The coronavirus outbreak across the world will result in a further slowdown in global economic activity, especially in the first half of the year, states the latest Moody’s report.

Moody’s Global Macro Outlook 2020-2021 has revised the baseline growth for all the G20 economies in the year 2020. As per the report, the countries are now expected to grow at 2.1 percent in 2020, which is 0.3 percentage point lower than the previous forecast.

India has already been witnessing an economic slowdown with its Gross Domestic Product (GDP) falling to 4.7 per cent in the third quarter of the fiscal year 2019-20

Moody’s Global Macro Outlook 2020-2021: Key Details

• China’s growth forecast for 2020 has been reduced to 4.8 percent from the previous 5.2 percent.

The growth forecast for the US has also been reduced to 1.5 percent in 2020 from the previous estimate of 1.7 percent.

In the case of India, the baseline growth forecast has been changed by just 10 points to 5.3 percent from the February assessment of 5.4 percent. Even in the case of more downfalls in the market due to COVID-19, India’s growth is just projected to fall to 5 percent.

However, the report predicts an increase in the risk of the global recession with the spread of novel coronavirus. It states that the longer the virus outbreak affects consumption and economic activity, the demand shock will dominate and lead to recessionary dynamics.

The report states that a sustained pullback in consumption, coupled with extended closures of businesses would hurt earnings and lead to layoffs and weigh on sentiment. Such conditions could aggravate recessionary dynamics.

Further, the heightened asset price volatility could magnify the shock. At the same time, the report states that fiscal and monetary policy measures can help limit the damage in individual economies.

Further, policy announcements from fiscal authorities, central banks and international organisations such as US Federal Reserve’s decision to cut the federal funds rate by 50 basis points and announcements from the Bank of Japan and the European Central Bank could help limit global financial market volatility and partly counter the tightening of financial conditions.

Background

Moody’s had previously assessed the effects of coronavirus mainly on the aggregate demand in China, global travel and global factory output resulting from disruptions in the supply chains through East Asia. It is now clear that the demand shock will additionally hamper domestic demand globally, which will affect a wide range of non-traded activities across countries simultaneously.

Moody’s is Moody’s Investors Service, which is a bond credit rating business of Moody’s Corporation. The company provides international financial research on bonds issued by commercial and government entities. It is one of the big three credit rating agencies along with Standard & Poor’s and Fitch Group.

Moody’s ranks the creditworthiness of borrowers using a standardized rating scale, which measures expected investor loss in the event of default. It rates debt securities in several bond market segments including government, municipal and corporate bonds and managed investments such as money market funds and fixed-income funds and financial institutions including banks and non-bank finance companies.

Moody’s was founded in 1909 by John Moody to produce manuals of statistics related to stocks and bonds and bond ratings.


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