‘Coronavirus a blow to prospect for near-term recovery’

‘Coronavirus a blow to prospect for near-term recovery’

Efforts to revive growth through unconventional monetary easing were raising hopes of a recovery.

AgenciesUpdated: Friday, March 06, 2020, 09:02 AM IST
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Economy |

New Delhi: India’s growth was stuck in a long slowdown even before the coronavirus outbreak struck China. Largely geared to domestic demand with limited integration in global supply chains, the economy is less exposed to the shock than other countries. Even so, it won’t escape unscathed.

Efforts to revive growth through unconventional monetary easing were raising hopes of a recovery. But with the spread of the virus far beyond China threatening a wider shock, India’s slump is likely to extend into the current and following quarter, before a delayed recovery starts to take hold.

We are lowering our estimate for 4Q fiscal 2020 GDP growth to 4.5% year on year from 5.4%, based on the results of large-scale economic model and our nowcasting models for India’s GDP and rural economy. That means growth for fiscal 2020 is set to slow to 5% from 6.1% in fiscal 2019.

For fiscal 2021, we expect growth to recover marginally to 5.6%, lower than our earlier estimate of 6%.

Our forecast is based on the current financial contagion caused by the virus, supply-side disruptions that are likely to start appearing next quarter, and an assumption China’s outbreak and isolated outbreaks in other economies extend into next quarter.

There is little upside to our forecast for fiscal 2021 but substantial downside risk if the outbreak becomes more severe and causes a deeper global shock -- resulting in increased travel restrictions, quarantines, supply chain disruptions and loss of consumer and investor confidence.

A worst-casescenario would be if India -- which has reported just 29 cases of Covid-19 so far -- were to experience a large outbreak itself.

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