Rating agency expects COVID-19 management to improve, allowing for normalisation of economic activity
Rating agency Moody’s Investors Service has revised upward India’s Gross Domestic Product (GDP) forecast for calendar year 2020 to -8.9% contraction from -9.6% it had projected earlier.
Similarly, India’s GDP forecast for calendar year 2021 has been revised upwards to 8.6% from 8.1% projected earlier, the agency said in its latest global macro outlook report released on Thursday.
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Titled ‘Nascent economic rebound takes hold globally but recovery will remain fragile,’ the Moody’s Outlook report for 2021-22 stated G-20 economies were expected to collectively contract by 3.8% in 2020, followed by 4.9% growth in 2021 and 3.8% growth in 2022.
“Moody’s Investors Service’s baseline forecasts assume that difficulty in controlling the virus will hinder the gradual process of recovery in the short term. However, Moody’s expects pandemic management will continue to improve over time, thereby reducing fear of contagion and allowing for a steady normalisation of social and economic activity. As a result, the virus is expected to become a less important macroeconomic concern throughout 2021 and 2022,” the report noted.
Moody’s Vice President-Senior Credit Officer Madhavi Bokil said that the scope for additional rate cuts was limited in most emerging market economies and they did not expect emerging market central banks to carry on with quantitative easing measures once the recovery strengthened.
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The report stressed that geopolitical and trade risks will remain a key focus in the year ahead as the relationship between the world’s two largest economies, the U.S. and China, has deteriorated. “Moody’s does not believe that the Biden administration would differ materially from the current administration with regard to these issues,” it said.
“For other countries, the pandemic shock has also led to both economic and national security concerns about supply-chain vulnerabilities and economic dependencies. The emphasis of various governments on shoring up domestic productive capacities can also be viewed as an attempt to reduce their co-dependence on the global economy,” the report noted.
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