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India’s growth could be the next casualty of the coronavirus outbreak

OECD slashed India’s growth forecast for 2020-21 by 110 basis points to 5.1% due to the impact of the virus.'An upturn will require a positive impact from reforms and monetary policy support in India,' said OECD in its interim economic assessment

Updated: Mar 03, 2020 13:40 IST

By Asit Ranjan Mishra, Livemint

India’s economic growth hit a more than six-year low of 4.7% in the December quarter (Photo: Aniruddha Chowdhury/Mint)

The Organisation for Economic Co-operation and Development (OECD) on Monday slashed India’s growth forecast for 2020-21 by 110 basis points (bps) to 5.1%, warning that the impact of the Covid-19 outbreak on business confidence, financial markets and the travel sector, including disruption to supply chains, could shave 50 bps off global growth in 2020.

“Growth continued to be subdued in many emerging market economies, with GDP growth slowly easing in China and large non-performing loans and overleveraged corporate balance sheets weighing on investment in India. An upturn will require a positive impact from reforms and monetary policy support in India and Brazil,” OECD said in its interim economic assessment.

In the reported titled “Coronavirus: The world economy at risk”, OECD said growth prospects remain highly uncertain.

“On the assumption that the epidemic peaks in China in the first quarter of 2020 and outbreaks in other countries prove mild and contained, global growth could be lowered by around 0.5 percentage point this year relative to that expected in the November 2019,” it said.



OECD said relative to the SARS outbreak in 2003, the global economy has become substantially more interconnected and China plays a far greater role in global output, trade, tourism and commodity markets, thus magnifying the economic spillovers to other countries from an adverse shock in China. For example, in 2002-03, India’s total trade with China was a paltry $4.8 billion, which has expanded more than 18 times to $87 billion in 2018-19.

Prospects for China have been revised markedly, with growth expected to slip below 5% this year, before recovering to over 6% in 2021, as factory output returns gradually to the levels projected before the outbreak.

India’s growth is forecast to recover in 2021-22 and grow at 5.6%, 80 bps lower than OECD’s estimate in November.

OECD cautioned that if downside risks materialize and growth appears set to be much weaker for an extended period, coordinated multilateral actions to ensure effective health policies, containment and mitigation measures, support low-income economies, and jointly raise fiscal spending would be the most effective means of restoring confidence and supporting incomes.

India’s economy slowed to an over six-year-low of 4.7% in the December quarter, as manufacturing output continued to contract.

Moody’s last month slashed its India GDP growth projection for 2020 to 5.4% from its earlier estimate of 6.6%, as it reduced its global growth projection to 2.4%, holding that the outbreak has diminished optimism about prospects of an incipient stabilization of global growth this year.

Separately, UBS in a report on the Indian economy released on Monday said it believes a weaker China and global growth, and disruptions along the supply chain are likely to affect India’s growth by 20 bps in the March quarter.

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