Moody's reduces India's growth projection to 5.4% by 2020

NEW DELHI: Investor service reduced India to Monday increase forecasts 5.4 percent by 2020 from 6.6 percent previously projected in a slower than expected economic recovery.

In its Global Macro Outlook update, Moody's said that India's economy has slowed rapidly over the past 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 increase 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 increase projections are based on calendar year and as per its estimates, India has clocked a GDP increase of 5 per cent in 2019.

With a weak economy and depressed credit increase 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, he said, the 2020 Union Budget did not contain a significant stimulus to address the drop in demand. As similar policies have shown in other countries, tax cuts are unlikely to result in higher consumer and business spending when risk aversion is high, he said.

Moody's said it expects 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 increase , Moody's said the coronavirus outbreak has diminished optimism about prospects of an incipient stabilization of global increase this year.

Global GDP increase forecast has been revised down, and Moody's now expect 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 increase forecast for China to 5.2 per cent in 2020 and maintain our expectation of 5.7 per cent increase in 2021," it added.