Moody's slashes India’s growth forecast to 5.3% for 2020 amid coronavirus outbreak

11 Mar 2020 Evaluate

Amid coronavirus outbreak globally, Moody's Investors Service in its update on Global Macro Outlook for March has slashed its growth forecast for India to 5.3% for 2020 from 5.4% estimated in February, as it expects the coronavirus outbreak to dampen domestic demand globally. It said the virus outbreak has spread rapidly outside China to a number of major economies. The report said it now seems certain that even if the virus is steadily contained, the outbreak will dampen global economic activity well into Q2 of this year. Moody's baseline forecasts assume that the number of cases would keep increasing globally and there would be travel restrictions through the April-June period.

Apart from supply chain disruptions, it also expects consumption and investment to be affected and prices of oil and other commodities to remain around current lows until the end of June. Accordingly, Moody's has revised growth forecasts for G20 economies to 2.1%, 0.3 percentage point lower than the previous baseline. China's 2020 growth forecast has also been reduced to 4.8% from the previous estimate of 5.2%. For the US, growth of 1.5% is now expected, down from the previous estimate of 1.7%.

The rating agency said baseline forecasts for this year are based on two assumptions -- the disruption of economic activity in the first half of this year will be followed by some recovery in global factory production and consumer demand in the second half; and warmer weather in the Northern Hemisphere in the spring and summer will weaken the spread of the virus. The agency said since the publication of its last Global Macro Outlook update in mid-February, the coronavirus outbreak has spread rapidly outside China to a number of major economies including Korea, Iran, Italy, Japan, Germany, France and the US.

Moody's noted that ‘previously, we 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’. The report added that it is now clear that the shock will additionally dampen domestic demand globally, which will affect a wide range of non-traded activities across countries and regions simultaneously. Further, Moody's has also analysed the downside scenario of 'extensive and prolonged slump' in case of significant increase in coronavirus cases or increasing public fear that the virus will not be contained and oil price stays around $40-50 for 2020.

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