Moody's Investors Service slashes India's growth forecast to 5.4 per cent for 2020

Moody's Investors Service on Monday slashed India's growth forecast to 5.4 per cent for 2020 from 6.6 per cent projected earlier. The forecast was downgraded - a fortnight after Finance Minister Nirmala Sitharaman presented the Budget 2020-21 in the Parliament - due to slower than expected economic recovery.

In its on Global Macro Outlook, Moody's said India's economy has decelerated rapidly over the last two years and expects the 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 the calendar year and as per its estimates, India has clocked a GDP growth of 5 per cent in 2019.

On the fiscal front, it said, the Union Budget 2020-21 do not contain significant stimulus to address the demand slump. It added, "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."

Moody's said it expects additional easing by the RBI. However, if the recent rise in Consumer Price Index (CPI) inflation, is seen to have second-round effects, this would make it more challenging for the central bank to cut interest rates further, it added.

Moody's said that the weakness in the global economy due to the impact of the novel coronavirus outbreak could hurt India's recovery, as mentioned in a report in Moneycontrol. It added that any recovery in the country may be lower than expected.

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.

Earlier on Sunday, Moody's in a release revised its 2020 global GDP growth forecast down, reflecting the impact of the coronavirus in China and domestic challenges in India, Mexico and South Africa. It reduced its growth forecast for China to 5.2 per cent for 2020 from 5.8 per cent previously, and maintain our 2021 growth forecast of 5.7 per cent.