Indian economic revival likely to be shallow: Moody's

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SME Times News Bureau | 17 Feb, 2020
Global credit rating agency Moody's Investor Services on Monday said the Indian economic revival will likely to be shallow.

In its report, 'Coronavirus clouds growth outlook just as the economy showed signs of stabilization', Moody's said the economic revival of India is likely to be shallow.

"India's economy has decelerated rapidly over the last two years. Real GDP (gross domestic product) grew at a meagre 4.5 per cent in Q3 2019," Moody's said.

Improvements in the latest high frequency indicators such as PMI (Purchasing Managers' Index) data suggest that the economy may have stabilized, Moody's said.

While the Indian economy may begin to recover in the current quarter, it will be slower than previously expected, Moody's said.

"Accordingly, we have revised our growth forecasts to 5.4 per cent for 2020 and 5.8 per cent for 2021, down from our previous projections of 6.6 per cent and 6.7 per cent, respectively," Moody's said.

Pointing out that the revival of domestic demand - rural and urban, is key for economic momentum, the credit rating agency also said the resumption of credit growth is also important.

"As data from the Reserve Bank of India (RBI) shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks, Moody's said.

The rating agency also said Indian banks were not willing to lend and lower their lending rates despite rate cuts by the RBI.

"As a result, non-food bank credit growth decelerated to 7.0 per cent in nominal terms in December 2019, down sharply from 12.8 per cent a year earlier.

"The deterioration in credit growth to the commercial sector is particularly stark. Nominal credit to industry grew at only 1.6 per cent year-on-year in December 2019, while credit to the services sector registered 6.2 per cent nominal growth, and credit to agriculture and related activities grew 5.3 per cent," Moody's said.

On the impact of the deadly coronavirus spread from China, Moody's said it is still too early to make a final assessment of the impact on China and the global economy.

"We have revised our global GDP growth forecast down, and we now expect G-20 economies to collectively grow at 2.4 per cent in 2020, a softer rate than last year, followed by a pickup to 2.8 per cent in 2021," the rating agency said.

According to Moody's assumptions, the virus outbreak will cause disruption in Q1 economic activity.

"Under our baseline forecast, the spread of the coronavirus will be contained by the end of Q1, allowing for resumption of normal economic activity in Q2.

"At present, China's economy is by far the worst affected. However, the rest of the world also has exposure as a result of a hit to global tourism in the first half of this year and short-term disruptions to supply chains," Moody's said.

Moody's also said the effects on the global economy could compound if the rate of infection does not abate and the death toll continues to rise, because supply chain disruptions in manufacturing would become more acute the longer it takes to restore normalcy.