S&P cuts India GDP growth forecast for FY21 to 5.2%

S&P Global Ratings on Monday cut its estimate for India’s GDP growth in the fiscal starting April 1 to 5.2 percent from its earlier estimate of 6.5 percent, as it saw the outbreak of coronavirus costing economies around the globe.

It put “the total and permanent income loss for Asia-Pacific from COVID-19 at approximately USD 620 billion.”

“This loss will be distributed across sovereign, bank, corporate and household balance sheets,” it said but did not give country-wise break up its estimated loss.

S&P said it has revised estimates for real GDP, inflation and policy interest rates for Asia-Pacific nations.

For India, it estimated a 5.2 percent growth in 2020-21 (April 2020 to March 2021), down from the previous estimate of 6.5 percent. In the following year, it projects a 6.9 percent growth, down from 7 percent earlier for 2021-22.

For the current fiscal which ends on March 31, it put the real GDP estimate at 5 percent.

It estimated a 7 percent growth in 2022-23 and 2023-24 fiscal years.

The inflation rate was seen moderating to 4.4 percent in the next fiscal from 4.7 percent in the current. It would further drop to 4.2 percent in 2021-22 but rise to 4.4 percent in the following financial year and then to 4.5 percent in the year thereafter.

Key policy interest rates are projected to fall to 4.25 percent in 2020-21 from current 5.15 percent but would rise to 4.5 percent in the 2021-21 financial year.

“S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak in June or August, and we are using this assumption in assessing the economic and credit implications,” it said.

The rating agency said the measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers.

S&P said a recession across Asia-Pacific is now guaranteed due to a deep first-quarter shock in China and the shutdown of activities across G7 economies.

“S&P Global Ratings believe this, together with a loss of household and business confidence in these economies, will translate into severe and more persistent supply and demand shocks across the region. Unemployment rates will rise.”

Domestic demand will be hit almost everywhere by restrictions on movement and risk aversion. “External spillovers will be felt through four channels – people flows — travel, tourism, and education; trade-demand for the region’s exports; supply chains–disruptions to production; and commodity prices.”

Standard and Poor’s (S&P) joins a chorus of international agencies that have made a similar cut in growth estimates in recent days.

Fitch Ratings had on Friday slashed its growth forecast for India from 5.6 percent to 5.1 percent for 2020-21.

Moody’s Investors Service last week lowered India’s GDP growth forecast for the 2020 calendar year to 5.3 percent from 5.4 percent it had projected earlier.

The Organisation for Economic Cooperation and Development (OECD) has cut its 2020 growth projections for India to 5.1 percent.

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