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'COVID-19 to impair Indian economy, FY20 GDP growth seen at 2.5%'

In its Global Market Outlook 2020-21 released on Thursday, Moody's said that with a lower growth rate, there would be a sharp fall in income which could further weaken the domestic demand and the pace of recovery in the next fiscal.

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New Delhi Updated on: March 27, 2020 14:41 IST
'COVID-19 to impair Indian economy, FY20 GDP growth seen at
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'COVID-19 to impair Indian economy, FY20 GDP growth seen at 2.5%'

The coronavirus pandemic and the ongoing lockdown is set to severely impair the Indian economy as the Moody's Investor Service has further lowered its growth estimate for India to 2.5 per cent for the current fiscal.

In its Global Market Outlook 2020-21 released on Thursday, Moody's said that with a lower growth rate, there would be a sharp fall in income which could further weaken the domestic demand and the pace of recovery in the next fiscal.

For the year 2020-21, it expects India's GDP to grow at 5.8 per cent.

"The governments of India (Baa2 negative) and South Africa (Baa3 negative) have announced 21-day lockdowns. We expect these measures to dampen economic growth in both countries this year. For India, we are now projecting growth rates of 2.5 per cent in 2020 followed by 5.8 per cent next year.

The report noted that in India, credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and non-bank financial sectors.

"A general lack of social safety nets, weak ability to provide adequate support to businesses and households, and inherent weaknesses in many major emerging market countries will amplify the effects of the coronavirus-induced shock," it said.

Additionally, emerging market countries with relatively open capital markets remain vulnerable to risk-off financial market sentiment as the growth outlook deteriorates. As a result, recoveries in many of the emerging market economies will likely be relatively more muted than those in advanced economies and China, as per the report.

On the global economy, the report said that it will contract in 2020, followed by a pickup in 2021.

"We have revised our global growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock, particularly in advanced economies, and the policy responses to combat the downturn are becoming cleare."

It said that the real GDP in the global economy is likely to contract by 0.5 per cent in 2020, followed by a pickup to 3.2 per cent in 2021.

Moody's said that their forecasts reflect the severe curtailment of economic activity in recent days as the coronavirus has spread throughout the world.

"Lockdowns and other social distancing measures have expanded throughout advanced and emerging market countries. Financial sector volatility has exploded to levels last seen during the 2008 global financial stress, despite the expectation of rapid policy response from major central banks and governments," it said.

On Monday, Moody's Investors Service said that the rapid spread of coronavirus in the last two weeks causing widespread business closures and unprecedented restrictions on social interactions will result in a permanent hit to global economic activity this year.

Raising grave concerns over the economic impact of the novel coronavirus pandemic, RBI Governor Shaktikanta Das also on Friday said that there is a high probability of parts of the global economy slipping into recession.

Das noted that the global economic activity has come to a near standstill as COVID-19 related lockdowns and social distancing have been imposed across most countries.

"Expectations of a shallow recovery in 2020 from 2019's decade low in global growth have been dashed," Das said.

"The outlook is now heavily contingent upon the intensity, spread and duration of the pandemic. There is a rising probability that large parts of the global economy will slip into recession."

The RBI Governor on Friday announced an emergency 75 basis point repo rate cut to 4.4 per cent along with other measures to ensure liquidity flow in the system and boost market and business sentiments.

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