Economy

Coronavirus impact: Moody’s cuts G-20 growth outlook by 0.3 percentage points to 2.1%

Our Bureau Mumbai | Updated on March 09, 2020 Published on March 09, 2020

Moody’s Investors Service said G-20 countries, as a group, are expected to grow by 2.1 per cent in 2020, 0.3 percentage points lower than its previous forecast, as the global spread of the coronavirus is resulting in simultaneous supply and demand shocks. It cautioned that global recession risks have risen.

The global credit rating agency is expecting these shocks to materially slow economic activity, particularly in the first half of this year.

The G-20 grouping includes advanced economies such as the US, Euro area, Japan, Germany and the UK, and emerging economies such as China, India, Brazil, Russia and Mexico.

Moody’s has lowered its 2020 forecast for China’s growth to 4.8 per cent from its previous estimate of 5.2 per cent. For the US, the agency now expects real GDP to grow by 1.5 per cent in 2020, down from its previous estimate of 1.7 per cent.

“The full extent of the economic costs will be unclear for some time. Fear of contagion will dampen consumer and business activity. The longer it takes for households and businesses to resume normal activity, the greater the economic impact,” the agency said.

Moody’s observed that 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,” it said.

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

In this regard, the agency referred to 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 to help limit global financial market volatility and partly counter the tightening of financial conditions.

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Published on March 09, 2020
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