Moody’s cuts India growth projection to 5.4% for 2020

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

In its update on Global Macro Outlook, Moody’s said India’s economy has decelerated rapidly over the last two years and expects economic recovery to begin in the current quarter.

The growth projections are based on calendar year and according to its estimates, India has clocked a GDP growth of 5% 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 expects additional easing by the RBI. 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 corona virus outbreak has diminished optimism about prospects of an incipient stabilisation of global growth this year.

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

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