Spreading Virus Prompts Steep Cuts In India Growth Forecasts
A person pulls down the shutter of a shop. (Photographer: Abhijit Bhatlekar/Bloomberg News)

Spreading Virus Prompts Steep Cuts In India Growth Forecasts

The continuing local spread of the novel coronavirus — India has so far detected 151 cases — has prompted economists to slash growth forecasts for an already slowing economy.

While detected number of cases are still relatively low in India, social distancing efforts have led to reduced activity, particularly across the services sector. This will likely hurt growth in the January-March and April-June quarters, according to economists.

Standard Chartered

Standard Chartered has pared its growth outlook for India for the second time in a week. It now expects growth in FY20 at 4.8 percent from 5 percent at the start of the month. For FY21, Standard Chartered now sees growth fall to 4.4 percent against its initial estimate of 5.6 percent.

“We further trim our India growth forecasts to reflect recent downgrades to our U.S., euro-area and China outlook,” wrote Anubhuti Sahay, head of South Asia economic research at the bank. “We now expect the U.S. and euro-area to be in recession in 2020, and China’s growth to slow to 4 percent.”

Sahay said 16 percent of final demand in India is from external sources and these three regions account for 50 percent of that. As such, India is likely to see a significant impact from the slowdown in these areas, apart from supply chain disruptions.

With the local spread of the coronavirus also picking up, the services sector to be the hardest-hit in FY21, Sahay said. She sees GDP growth hit a low of 4 percent in the first quarter of FY21.

Bank Of America Securities

Bank of America Securities has pared its growth forecast for the March 2020-ended quarter by 30 basis points to 4 percent. Growth stood at 4.7 percent in the previous quarter. For the April-June quarter, when the economic impact may be most pronounced, the research house has pared its forecast by 80 basis points to 4 percent.

“Although we had called the worst over after November data, shutdowns needed to contain the Covid-19 outbreak will likely pull down activity,” Indranil Sengupta, chief India economist at Bank of America Securities, said.

For FY20 and FY21, the research house has cut its growth forecasts by 10 basis points and 20 basis points, respectively, to 4.7 percent and 5.1 percent. This forecast still assumes global growth at 2.2 percent.


Nomura Global Market Research said the disruptions caused by Covid-19 disruptions will hit economic data and sentiment.

“We expect the bottom of the growth cycle to be delayed and see more interest rate cuts,” wrote chief India economist Sonal Varma in a note on March 13.

Nomura expects GDP growth at 4.5 percent in 2020 compared with 4.7 percent earlier. It still sees a relatively strong 6 percent growth in 2021 against 6.6 percent earlier.

Recent high-frequency indicators continue to show relatively broad-based weakness, Varma wrote in her note. “Additionally, the Covid-19 outbreak is likely to affect the supply of intermediate and capital goods imported from China, as well as hit confidence, even though the economy benefits from lower commodity prices.”

The fourth quarter of the current financial year may see growth slide to 3.9 percent and remain flat at 4 percent in the first quarter of the next year, Varma said.

Standard & Poor’s

S&P Global Ratings, too, lowered India’s economic growth forecast. The rating agency sees growth at 5.2 percent for 2020 against its earlier projection of 5.7 percent.

S&P sees the global economy entering a recession amid the coronavirus pandemic. “Asia-Pacific economic growth in 2020 will more than halve to less than 3 percent as the global economy enters a recession,” it said. “We lower our forecasts for China, India, and Japan for 2020 to 2.9 percent, 5.2 percent and -1.2 percent.”

Moody’s Investors Service

Moody’s Investors Service sees India’s GDP growth at 5.3 percent in 2020 due to coronavirus’ impact on the economy.

The credit ratings agency had in February this year pegged India’s GDP growth rate at 5.4 percent—also a downgrade from an earlier forecast of 6.6 percent.

Like others, Moody’s, too, sees a bulk of the hit coming from the slowing global economy. “The longer the disruptions last, the greater the risk of global recession becomes,” it said.

While governments and central banks have stepped in with measures to support the economy, Moody’s was uncertain of the impact these steps will have. “The effectiveness of policy easing will be blunted by measures to contain the outbreak, and policy space is constrained for some sovereigns,” it said.

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