S&P Global Ratings on Wednesday lowered India's economic growth forecast to 5.2 per cent for 2020, saying the global economy is entering a recession amid the coronavirus pandemic. The agency had earlier projected a growth rate of 5.7 per cent during the 2020 calendar.
Asia-Pacific economic growth in 2020 will more than halve to less than 3 per cent as the "global economy enters a recession", S&P said in a statement.
"An enormous first-quarter shock in China, shutdowns across the US and Europe, and local virus transmission guarantees a deep recession across Asia-Pacific," said Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings.
By recession, S&P meant at least two quarters of well below-trend growth sufficient to trigger rising unemployment. "Our estimate of permanent income losses is likely to at least double to more than $400 billion," said Roache.
According to the statement, external shocks from the fallout of the global viral spread add a new dimension. People flows from the US and Europe will be decimated for at least two quarters, heaping more pressure on the tourism industry.
If lingering uncertainty results in a strong preference for US dollars, policymakers in Asia's emerging markets may be forced into a damaging round of pro-cyclical policy tightening, Roache said. The countries most vulnerable to capital outflows remain India, Indonesia, and the Philippines, he added.
"We lower our forecasts for China, India, and Japan for 2020 to 2.9 per cent, 5.2 per cent and -1.2 pre cent (from 4.8 per cent, 5.7 per cent, and -0.4 per cent previously)," S&P said in the statement.
The global policy response, including the Federal Reserve's policy-rate cut to zero and the Bank of Japan's scaled-up asset purchases, will help cushion but not quickly reverse these shocks, it said.
Local measures aiming to support vulnerable sectors and workers may help but their effect will "wane the longer the crisis lasts". It further said the timing of a recovery depends, most of all, on progress in containing the viral spread.
Even if major progress is made during the second quarter, after a sustained period of stressed cash flow many firms will be in no position to resume investing quickly, the S&P said.
Households that have either lost their jobs or have worked fewer hours will spend less and banks will be busy managing the deterioration in asset quality, it said.
On Tuesday, Moody's Investors Service had lowered India's economic growth forecast for 2020 to 5.3 per cent (from 5.4 per cent), on coronavirus impact on the economy.