Moody’s: India's GDP to contract 3.1% in 2020

In its latest Global Macro Outlook published on Tuesday, Moody's Investors Service said India's economic recovery will face a tough path amid adverse real economy and bank weakness.

Key findings

“India's gross domestic product (GDP) will contract 3.1% in 2020 and grow 6.9% in 2021 in line with its June forecasts.

Retained its global forecast of 4.6% GDP contraction for 2020.

The rating agency said in its baseline projections that China, India and Indonesia will be the only G-20 emerging economies to post a strong enough pickup of real GDP in the second half of 2020 and full-year 2021 to end next year above pre-coronavirus levels.

Coronavirus-related supply disruptions have led to a rise in food prices in several emerging market countries, including India, but is a temporary phenomenon. It expects the current shock to be disinflationary overall.

On the policy front, central banks across all major economies will pursue easy monetary and financial conditions for several years. The extraordinary economic slack and subdued oil prices make for a benign inflation outlook over the next two years.

As the impact of the current measures fades over time, fiscal policy will continue to evolve. Beyond the fiscal measures to address the cyclical shock, deep structural reforms would go a long way toward stabilizing potential growth.

In fact, maintaining potential growth near pre-crisis levels would require growth-enhancing reforms. Additionally, while there are implementation risks, infrastructure development by fast-tracking existing projects could provide a boost to growth in these countries.”

Market reaction

Amid the dour growth outlook and broad US dollar rebound, Indian rupee loses ground on Wednesday.

USD/INR rises 0.25% to 74.35, at the time of writing, having hit a daily low of 74.22.

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