Moody’s Revises India’s 2020 GDP Goal, Expect Contraction of 8.9%

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The global rating agency Moody’s Investors Service has revised India’s GDP forecast upwards for the calendar year 2020 to -8.9 percent contraction from -9.6 percent contraction, which was forecast earlier.

Whereas India’s GDP forecast for the calendar year 2021 has been revised upwards to 8.6 percent from 8.1 percent projected earlier, Moody stated in its Global Macro Outlook 2021-22 report on Thursday, 12 November.

In its report, Moody noted that the global recovery in the coming year will be highly dependent on the development and distribution of a coronavirus vaccine, effective pandemic management as long as the virus remains a public health risk, and government policy support.

“We, therefore, forecast a gradual improvement in economic activity over the coming quarters. However, slow credit intermediation will hamper the pace of recovery because of an already weakened financial sector,” Moody’s said, reported Economic Times.

The report further stated that India’s economy had the biggest contraction in the second quarter, as a result of a long and strict nationwide lockdown.

Though restrictions have eased slowly in phases, the result has been patchy.

The Moody report also noted a gradual economic improvement in emerging market countries, including Brazil, Mexico, India and Indonesia.

The baseline forecasts assume that difficulty in controlling the virus will hinder the gradual process of recovery in the short term. But Moody expects pandemic management will continue to improve over time, which will eventually allow a steady normalisation of social and economic activity, reported Livemint.

“The COVID-19 shock has triggered extraordinary fiscal policy responses from governments in advanced economies, including the US, Europe and Japan, facilitated by a large expansion of their central bank asset purchase programs.”

Moody’s Vice President-Senior Credit Officer Madhavi Bokil

“Looking ahead, we expect advanced economy central banks to actively hold down yields across all maturities and to expand asset purchases to include a wider range of assets if the economic backdrop remains difficult. For most emerging market countries, the scope for additional rate cuts is limited and we do not expect emerging market central banks to carry on with quantitative easing measures once the recovery strengthens,” Moody’s report states.

India's GDP shrank 8.6 percent in the quarter ending September, the RBI said in its latest report.

Earlier on Thursday, the RBI in its ‘State of the Economy’ report stated that “India has entered a technical recession in the first half of 2020-21 for the first time in its history,”

(With inputs from Economic Times, Livemint)