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Fitch Ratings Downgrades GDP Growth Rate of India to 2%

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 5, 2020 3:08 PM 5 min read
Editorial

Indian economy could contract to -10.3%, US by 11%, Nomura warns. India’s economic growth may slow down to 4% in FY21, says ADB. Fitch further downgrades India's GDP growth to 2%. Oil prices fall to 17-year low. India stares at 136m job losses. 10m Americans lost their jobs in the last two weeks. 

 

 

GDP DOWNGRADE

Indian economy could contract to -10.3%, US by 11%, Nomura warns.

In Negative Terrain

Nomura has some dire predictions for the Indian economy. It has cut the country’s Y-o-Y growth forecast for 2020 from 4.5% to -0.5%.

 

“We now expect GDP growth to slide from 4.7% Y-o-Y in Q4 2019 to 3.1% in Q1 and plunge to -6.1% in Q2, when both domestic and external demand will weaken. We are building in a sequential pickup in the second half of 2020, but the pace of recovery is likely to be much weaker given some lasting damage to potential output,” Nomura has predicted.

 

At the global level, Nomura sees the US and Euro area economies to suffer the most due to the pandemic. The American economy, it forecast, could contract by over 11% in the worst case scenario. [BS]

 

India’s economic growth may slow down to 4% in FY21, says ADB.

A Dark Space

The Asian Development Bank (ADB) has said that India’s economic growth may further slow down to 4% in FY21, on the back of an already slowing economy getting hit by the coronavirus outbreak. 

 

ADB said measures to contain the virus and a weaker global environment will act as headwinds, offsetting support from corporate and personal income tax cuts as well as financial sector reforms meant to revive credit flows. [Hindu BusinessLine]

 

Fitch further downgrades India's GDP growth to 2%. 

Fitch Ratings has reduced its FY21 growth projection for India to a 30-year low of 2% in the wake of business shutdown and lower consumer spending after the coronavirus breakout and the subsequent lockdown.

 

This is a sharp reduction from the 5.1% estimated only 15 days ago. 

 

On the other hand, Acuite Ratings and Research has estimated that the 21-day lockdown will result in a loss of GDP of almost $98bn.

 

MARKETS

Oil prices fall to 17-year low.

And Way Down We Go

Oil prices are in free fall. Today, Brent crude climbed below $25 a barrel while US West Texas Intermediate crude futures dipped below $20 a barrel. A combination of two decisive factors – decrease in demand due to the coronavirus crisis and tensions between Saudi Arabia and Russia – have caused prices to plummet to their lowest in 17 years. [CNBC]

 

Why are Russia and Saudi Arabia sparring over oil prices? And why does the US want to intervene? Read this article for an explainer. [TRANSFIN.]

 

RBI reduces trading hours for money markets, including that of foreign currency.

Preparing for the Worst

The Central Bank today cut market trading hours for both bonds and foreign exchange to four hours (10am-2pm), in light of the possible operational and logistical risks arising from the nationwide lockdown due to the COVID-19 outbreak.

 

The shortened hours will be in place from April 7th-17th (both days inclusive) and will apply to products that do not trade on recognised exchanges. [ET Markets]

 

 

BANKING

PSU banks announce deferment of EMI payments for three months following RBI order.

A Bank in Need is RBI Indeed

The RBI Governor last week allowed borrowers to not pay any equated monthly installments (EMIs) for loans for three months, subject to individual bank policy, within the backdrop of the ongoing slump in the economy, particularly owing to the coronavirus pandemic. 

 

And towards this effect, some PSU banks, including SBI, PNB, Bank of Baroda, Union Bank of India, IDBI and others, have offered loan EMI moratoriums to their customers. Here's a look at what each of them had to say. [ToI]

 

Interest rates on small savings schemes will be slashed.

Set for Low

Interest rates on some small savings schemes like Public Provident Fund (PPF), National Savings Certificate (NSC), Kisan Vikas Patra (KVP) and others will earn lower interest for Q1 of FY21 (April - June). By how much were interest rates for these schemes cut an what does this mean for you? Read this article for details. [India Today]

 

New income tax rules go into effect today.

New Rules

The new financial year will herald in some changes in income tax rules. These include new tax slabs and deferment of tax payments on shares allotted to start-up employees. Click here to read about five changes in income tax rules that will come into effect today. [Business Today]

 

Extra Crunch

By the way, speaking of income tax, do you want to learn about how to pay less in income tax by availing income tax deductions and income tax exemptions? Read this article for details. [TRANSFIN.]

 

JOB LOSSES

India stares at 136m job losses.

A "Deadly" Combination

An already slowing economy hit by the deadly coronavirus is a rather deadly concoction. 

 

Estimates based on National Sample Survey (NSS) and Periodic Labour Force Surveys (PLFS) data suggest that about 136m non-agricultural jobs are at immediate risk owing to the coronavirus outbreak. 

 

Industry body CII said that more than half of the tourism and hospitality industry can go sick with a possible loss of over 20m jobs if recovery in the industry stretches beyond October 2020. A deep dive into the matter here. [Livemint]

 

10m Americans lost their jobs in the last two weeks. 

Red Line, Spiking Up

Last week’s US jobs report showed 3.3m Americans filing for unemployment aid – the highest before that in the country’s history was a distant 695,000. Yesterday, the latest jobs report gave an even worse number – 6.6m. This means that nearly 10m Americans lost their jobs in the last two weeks alone as companies resort to mass layoffs amidst the coronavirus pandemic. [AP]

 

WORLD ECONOMY

Chinese central bank cuts reverse repo rate by most in five years.

It's a Cut

Meanwhile, in China, where the coronavirus originated, the central bank announced that it was lowering the seven-day reverse repo rate to 2.2% from 2.4%. The 20 basis points cut is the largest in nearly five years. [Reuters]

 

World Bank approves $1bn emergency fund for India.

Monetary Aid

The World Bank has approved $1.9bn in emergency financial assistance to go to 25 countries to help them tackle the coronavirus pandemic. The largest chunk of this aid - $1bn - will go to India to “support better screening, contact tracing, and laboratory diagnostics; procure personal protective equipment; and set up new isolation wards”. [BS]

FIN.

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