CRISIL has slashed its base-case gross domestic product (GDP) growth forecast for fiscal 2021 to 3.5 per cent from 5.2 per cent expected earlier.

The past few days have seen global growth forecasts slashed and financial markets heaving as the Novel Coronavirus (Covid-19) pandemic spread geometrically.

"It is now the No 1 risk for the world economy with multi-dimensional ramifications because, unlike the Global Financial Crisis of 2008, it not only slams the brakes on economic activity and jeopardises financial stability, but also brings with it enormous human suffering not seen in decades," CRISIL said in a statement.

"Since our last forecast of 5.2 per cent GDP growth for fiscal 2021, the scenario has worsened notably. S&P Global has marked global growth down significantly, predicting likely recession in the US and the Eurozone, and lowering

Chinese growth to 2.9 per cent from 4.8 per cent with dominant downside risks.

“The pandemic in India and the consequent lockdown for 21 days pose a material risk to our India economic outlook," CRISIL said.

The adverse effects that will follow can dwarf the gains from the sharp drop in crude oil prices, and the anticipated monetary and fiscal stimuli.

Dharmakirti Joshi, Chief Economist, CRISIL, “We have slashed our base-case gross domestic product (GDP) growth forecast for fiscal 2021 to 3.5 per cent from 5.2 per cent expected earlier. This assumes two things: a normal monsoon, and the effect of the pandemic subsiding materially, if not wearing out, in the April-June quarter."

"The slump in growth will be concentrated in the first half of next fiscal, while the second half should see a mild recovery,” he added.

The impact of social distancing and decline in discretionary spending will aggravate the downturn in the April-June quarter, and the sharp slowdown in key trading-partner economies will slam exports.

Services, which now account for 41 per cent of total exports, have been resilient so far. But a recession in the advanced economies would dampen prospects for IT-ITES, tourism and bring down services exports growth.

The ongoing lockdown is bringing manufacturing and services to a grinding halt and disrupting domestic supply chains. As revenue streams of companies get impacted, daily wagers and temporary workers will be in the firing line.

The impact of all this will vary by sector, but services would be hit particularly hard and there is a risk of long-term loss of demand and capacity in both industrial and services sectors, if the crisis prolongs

Ashu Suyash, MD and CEO, CRISIL Ltd, said, “The non-linearity and complexity of what’s unfolding creates uncertainties not only for businesses but for all mankind, and weighs heavily on sentiment and outlook, with

risks tilted to the downside. Inability to control the pandemic and extension of the lockdown will aggravate supply and demand shocks. Reasons why it is hard to quantify the downside at the present moment.”

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Published on March 26, 2020