Moody's cuts growth forecast to 5.4%

Moody's cuts growth forecast to 5.4%

Agency News

Moody’s Investors Service on Monday slashed India’s growth forecast to 5.4 per cent for 2020 from 6.6 percent projected earlier on slower-than-expected economic recovery.

In its update on Global Macro Outlook, Moody’s said India’s economy had decelerated rapidly over the last two years and expected economic recovery to begin 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 per cent for 2020 and 5.8 per cent for 2021, down from our previous projections of 6.6 per cent and 6.7 per cent, respectively,' Moody’s said.

The growth projections are based on calendar year and as per its estimates, India has clocked a GDP growth of 5 per cent in 2019.

With a weak economy and depressed credit growth reinforcing each other, Moody’s said 'it is difficult to envision a quick turnaround of either, even if economic deceleration may have troughed'.

On the fiscal front, it said the Union Budget 2020 did not contain a significant stimulus to address the demand slump. 'As similar policies in other countries have shown, tax cuts are unlikely to translate into higher consumer and business spending when risk aversion is high,' it said.

Moody’s said it expected additional easing by the RBI. However, if the recent rise in CPI inflation, mainly as a result of higher food prices, is seen to have second-round effects, this would make it more challenging for the central bank to cut interest rates further, it added.

With regard to global growth, Moody’s said the coronavirus outbreak had diminished optimism about prospects of an incipient stabilisation of global growth this year.

Global GDP growth forecast has been revised down, and Moody’s now expects G-20 economies to collectively grow 2.4 per cent in 2020, a softer rate than last year, followed by a pickup to 2.8 per cent in 2021.

'We have reduced our growth forecast for China to 5.2 per cent in 2020 and maintain our expectation of 5.7 per cent growth in 2021,' it added.