Coronavirus impact: Fitch cuts India growth to 5.1% for FY’21, says world economy in recession
New Delhi, Mar 20 : Fitch Ratings on Friday cut India growth forecast to 5.1 per cent for FY 2020-21, saying supply chain disruptions in the wake of coronavirus outbreak are likely to hit investment and exports.
It also said that with global GDP falling, the world is in “recession territory”.
Fitch had in December 2019 projected India to grow at 5.6 per cent in 2020-21 and 6.5 per cent in the following year.
In its Global Economic Outlook 2020, Fitch said the number of people affected by coronavirus in India will keep rising in the coming weeks but that the outbreak will remain contained. However, there are downside risks to this scenario.
“Supply-chain disruptions are expected to hit business investment and exports… We see GDP growth to remain broadly steady at 5.1 per cent in the fiscal year 2020-2021 following growth of 5.0 per cent in 2019-2020,” Fitch said.
For 2021-22, Fitch projected India’s growth to be 6.4 per cent.
Stating that the coronavirus crisis is “crushing” global GDP growth, Fitch halved its baseline global growth forecast for 2020 — to just 1.3 per cent from 2.5 per cent projected in December 2019.
“The level of world GDP is falling. For all intents and purposes we are in global recession territory,” said Brian Coulton, chief economist at Fitch Ratings.
Fitch said the outbreak of the virus is hitting sentiment, while local governments have rolled out measures to contain the spread of the virus, such as closing schools, cinemas and theatres.
“While India’s linkages with China (e.g. trade and tourism) are modest, manufacturers in India are heavily reliant on key Chinese intermediate inputs especially of electronics and machinery and equipment, it said.
It also projected the Indian rupee to be at 74 to the US dollar by the end of December 2020. The rupee is currently trading around 74.78 to a dollar.
WHO has declared coronavirus pandemic. Over 2 lakh people have been infected globally and the disease caused by it COVID-19 has claimed over 9,000 lives. In India there are over 160 positive cases and 4 deaths so far.
The difficulties facing the Indian economy have been exacerbated by Yes Bank failure.
“Fragilities in the financial system will further undermine sentiment and domestic spending. The overall financial system remains burdened with weak balance sheets, which will limit any upside to credit and growth despite policymakers’ efforts in recent months to ease stresses,” it added.