Economy

Covid-19: Crisil cuts GDP growth forecast to 5.2% for 2020-21

Our Bureau Mumbai | Updated on March 19, 2020 Published on March 19, 2020

The Novel Coronavirus (Covid-19) has cast a long shadow over a much-anticipated mild recovery in the Indian economy in fiscal 2021, with the World Health Organization (WHO) declaring it a pandemic.

In view of this, Crisil has cut its base-case gross domestic product (GDP) growth forecast for fiscal 2021 to 5.2 per cent, from 5.7 per cent announced recently.

 

“External risks to global growth has increased significantly now. S&P Global foresees a recession in the US and the Euro Zone, and has its forecast for China’s growth slashed to 2.9 per cent from 4.8 per cent announced on March 5. Domestically, some hit to consumption demand because of social distancing is likely, though it is too early for that to reflect in data. Currently, the other downside to growth is also due to the financial sector stress now percolating to private sector banks,” Crisil said in a new report.

The agency added that a serious downside to the base case can emerge from two developments. One, the pandemic is not contained by April-June 2020 globally, and makes the global slowdown more severe. And two, it spreads rapidly in India, affecting domestic consumption, investment and production.

Credit quality pressures on India Inc, which has been rising because of economic slowdown and consumption slump are set to intensify with the Covid-19 pandemic.

The impact will vary with sectors, and will be influenced by the extent of trade disruption, social distancing and the resultant economic slowdown. Based on the depth and timing of impact, sectors witnessing credit quality pressures have been broadly classified into three.

Those facing significant loss of revenue and profit have been categorised as ‘high risk’, while others are termed ‘moderate’ and ‘low impact’. Those in the high-risk bucket are further classified based on the timing of impact. Firms facing high near-term risks are more exposed to liquidity stress.

Over the past few days, the sharp fall in equity indices and deterioration in bond yields of some key markets indicate the virus outbreak may have prolonged impact on the world economy and recovery will not be as swift as envisaged before, Crisil said.

Published on March 19, 2020
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