India GDP fall to be less than expected earlier; Moody’s scales down 2020 contraction forecast

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Updated: Nov 12, 2020 1:59 PM

Moody's today said it has raised its GDP forecast for India, prompting  Finance Minister Nirmala Sitharaman to present it as a testament to India’s economic recovery.

India's GDP, GDP in FY21, economic recovery, stimulus measuresThe forecast has been revised by keeping in mind the latest stimulus that prioritises manufacturing and job creation, and focuses on longer-term growth.

Moody’s today said it has raised its GDP forecast for India, prompting  Finance Minister Nirmala Sitharaman to present it as a testament to India’s economic recovery. Moody’s Investor Service trimmed the estimate by which the economy is likely to contract. Moody’s said that it sees India’s GDP contracting 8.9% this year against the 9.6% contraction it had predicted earlier. For 2021, Moody’s expects India’s GDP to grow at 8.6% against the 8.1% that was earlier expected. The 8.6% growth in 2021, will make India the fastest growing emerging economy. Finance Minister Nirmala Sitharaman took note of the same and highlighted it in her press briefing today.

“India’s economy had the biggest contraction, 24% year-over-year in the second quarter, as a result of a long and strict nationwide lockdown. Restrictions have eased only slowly and in phases, and localized restrictions in containment zones remain. As a result, the recovery has been patchy,” Moody’s said. However, the global rating agency highlighted that India’s new and active coronavirus cases have been declining which should help in improving the economic activity further.  The already weakened financial sector could hamper the pace of economic recovery, according to Moody’s. 

Global recovery from the coronavirus crisis is likely to be asymmetric in the view of Moody’s Investor Service. “The economic recovery over the coming year will be highly dependent on three factors; the development and distribution of a coronavirus vaccine, effective pandemic management, and government policy support,” they said.

Although a vaccine will be positive for economies across the globe, Moody’s believes that the management of the pandemic will be key for sustained recovery. “For the purposes of forecasting, we assume that pandemic management will continue to improve over time and everywhere, thereby reducing fear of contagion and allowing for a steady normalization of social and economic activity. As a result, the virus will become a less important macroeconomic concern throughout 2021 and 2022,” Moody’s said.

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