Moody's cuts India GDP growth forecast To 2.5% in 2020

New Delhi: Moody's Investors Service on Friday slashed its estimate of India's GDP growth during 2020 calendar year to 2.5 per cent, from an earlier estimate of 5.3 per cent and said the coronavirus pandemic will cause unprecedented shock to the global economy.

The estimate for 2020 compares to 5 per cent economic growth in 2019.

In its Global Macro Outlook 2020-21, Moody's said India is likely to see a sharp fall in incomes at the estimated 2.5 per cent growth rate, further weighing on domestic demand and the pace of recovery in 2021.

"In India, credit flow to the economy already remains severely hampered because of severe liquidity constraints in the bank and non-bank financial sectors," it said.

Earlier this week, India imposed a three-week long nationwide lockdown, the most far-reaching measure undertaken by any government to curb the spread of the coronavirus pandemic that has killed at least 17 people in the country so far.

The lockdown has resulted in closure of businesses as well as factories and temporary unemployment for thousands of workers. The lockdown followed suspension of train, flight and long distance bus services last week.

"Over the next few months, job losses will likely rise across countries," Moody's said adding "the speed of the recovery will depend on to what extent job losses and loss of revenue to businesses is permanent or temporary."

Indian government too on Thursday announced a Rs 1.7 lakh crore package including free foodgrains and cash to poor, for the next three months.

Moody's said central banks are taking actions aimed at ensuring ample liquidity in the financial system, that credit conditions do not overly tighten, credit continues to flow smoothly to households and businesses, and the banking system remains robust.

"For central banks, limiting the duration of the shock to one or two quarters is also imperative to prevent it from manifesting into a banking or broader financial sector crisis," it said.

Stating that it expects policy measures to continue to grow and deepen, as the consequences of the shock in terms of depth and duration become clearer, the rating agency said it is impossible to accurately estimate the economic toll of this crisis.