Coronavirus slowing down economic activity: Moody’s

Moody's

indica News Bureau-

The global spread of the novel coronavirus associated with COVID-19 is resulting in simultaneous supply and demand shocks and will result in further slowing down of the global economic activity particularly in the first half of this year, Moody’s Investor Services had said in its latest report.

The assessment is bad news for India, which has already experienced  slowing down of its Gross Domestic Product (GDP) growth to 4.7 percent in the third quarter of fiscal year 2020.

According to Moody’s Global Macro Outlook 2020-2021, the baseline growth for 2020 has been revised for all G-20 economies. Accordingly, these countries, as a group, are expected to grow by 2.1% in 2020, 0.3 percentage points lower than Moody’s previous forecast.

For India the downside risks of COVID-19 are relatively lower, withbaseline growth forecast changing by 10 basis points, or 0.1 percent, from February assessment of 5.4% to 5.3%. In the event of an extensive slump,
India’s growth is projected to fall to 5%, according to Moody’s.

The 2020 growth forecast for China has been lowered to 4.8% from Moody’s previous estimate of 5.2%., for the US to 1.5% in 2020, down from the previous estimate of 1.7%.

Moody’s has said that global recession risks in the wave of the coronavirus spread have increased.

“The longer the outbreak affects economic activity, the demand shock will dominate and lead to recessionary dynamics. In particular, a sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment. Such conditions could ultimately feed self-sustaining recessionary dynamics. Heightened asset price volatility would magnify the shock,” Moody’s said in its report.

Previously, Moody’s assessed the effects of the virus mainly on aggregate demand in China, global travel and global factory output resulting from disruptions in supply chains through East Asia. It is now clear that the shock will additionally dampen domestic demand globally, which affect a wide range of non-trade activities across countries and regions simultaneously.

Moody’s said that fiscal and monetary policy measures will likely limit the damage in individual economies. Policy announcements from fiscal authorities, central banks and international organizations so far suggest that policy response is likely to be strong in affected countries.

“The US Federal Reserve’s decision to cut the federal funds rate by 50 basis points and the announcements from the European Central Bank and the Bank of Japan assuring policy support will limit global financial market volatility and partly counter the tightening of financial conditions.”

 

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