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Coronavirus effect: India's GDP may contract by 3.1% in 2020, says Moody's

India's GDP growth may bounce back to 6.9 per cent in 2021 as gradual recovery is expected to start from the second half of this year, says Moody's

twitter-logoBusinessToday.In | June 22, 2020 | Updated 21:19 IST
Coronavirus effect: India's GDP may contract by 3.1% in 2020, says Moody's
Moody's warned that second quarter of the current fiscal will go down in history as the worst quarter for global economy since World War 2

Weeks after cutting India's sovereign rating, Moody's on Monday said that India's gross domestic product (GDP) will contract 3.1 per cent in 2020 due to the coronavirus-led nationwide lockdown. The global rating agency, however, added that economic growth may bounce back to 6.9 per cent in 2021 as gradual recovery is expected to start from the second half of this year.

According to Moody's global macro outlook report for June, the global economy has started showing signs of life, but the "recovery will be long and bumpy". The effects of lockdowns will be larger than previously estimated, the agency said.

The agency warned that second quarter of the current fiscal will go down in history as the worst quarter for global economy since World War 2.

Moody's sees G20 economies to contract by 4.6 per cent in 2020 and grow by 5.2 per cent in 2021. Among the G20 nations, China is the only country which is expected to post growth in 2020. Asia's largest economy is projected to grow 1 per cent in 2020 and 7.1 per cent in 2021.

The report also took into account ongoing border tensions between India and China, saying that Asian countries are particularly vulnerable to changes in geopolitical dynamic.

"The Asian countries are particularly vulnerable to changes in geopolitical dynamics, finds the report highlighting that China's clashes with countries bordering the South China Sea, India suggest geopolitical risks rising for the entire region," the report said.

The report also highlighted that the COVID-19 crisis has escalated tensions on trade and technology between the US and China which is likely to persist after US presidential election in November. The Phase 1 trade deal between the two nations remains at risk, while progress on Phase 2 remains uncertain at best, it added.

Also Read: Moody's cuts India's sovereign rating to Baa3, maintains negative outlook

On June 1, Moody's had downgraded India's foreign currency and local currency long term issuer ratings to Baa3 from Baa2 with a negative outlook, citing that economic disruption caused by the coronavirus outbreak would amplify vulnerabilities in India's credit profile that were already under stress before pandemic.

Earlier today, Fitch Ratings has said that the recent tensions between New Delhi and Beijing arising out of the border issue may not have immediate effect on India's credit profile, distracting the government from executing the announced policy reforms and impact medium term outlook. The agency has projected India's economic activity to contract by 5 per cent in the fiscal year ending March 2021 (FY21) due to the strict lockdown measures imposed by the government to contain the spread of coronavirus. It expects growth to rebound to 9.5 per cent next year, mainly due to low base.

Also Read: Tensions with China may impact India's medium term outlook: Fitch Ratings

The tension between India-China has escalated in last one week after 20 Indian soldiers were killed in pre-meditated and planned attack by Chinese soldiers at Galwan Valley in Ladakh on Monday night. This was the biggest military confrontation in over five decades that has significantly escalated the already volatile border standoff between the two countries.

The tension between India-China has escalated in last one week after 20 Indian soldiers were killed in pre-meditated and planned attack by Chinese soldiers at Galwan Valley in Ladakh on Monday night. This was the biggest military confrontation in over five decades that has significantly escalated the already volatile border standoff between the two countries.

By Chitranjan Kumar

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