Moody’s Investors Service on Thursday revised upwards its GDP forecasts for India to (-) 8.9 percent contraction in the 2020 calendar year, as the economy reflates after a long and strict nationwide lockdown but said the recovery is patchy. In its Global Macro Outlook 2021-22, Moody’s also revised upwards India’s GDP forecast for calendar year 2021 to 8.6 percent growth from an earlier projection of 8.1 percent expansion. The Indian economy had grown by 4.8 percent in 2019.

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For the calendar year 2020, it forecast a -8.9 percent contraction, up from its earlier projection of -9.6 percent contraction. ”India’s economy had the biggest contraction, 24 percent year-over-year in the second quarter (April-June), as a result of a long and strict nationwide lockdown,” the rating agency said. India had a 69-day nationwide lockdown, which was followed by local and state-level restrictions to contain the spread of the pandemic.

Restrictions have eased only slowly and in phases, and localised restrictions in containment zones remain. ”As a result, the recovery has been patchy,” it said.

A steady decline in new and active cases coronavirus cases since September, if maintained, should enable further easing of restrictions. ”We, therefore, forecast a gradual improvement in economic activity over the coming quarters,” it said. ”However, slow credit intermediation will hamper the pace of recovery because of an already weakened financial sector.” Moody’s said the nascent global economic recovery is under threat from rising COVID-19 cases in the US and Europe.

”All of the G-20 countries have sustained severe output losses this year, but the contraction in some economies is sharper than in others. The pace of improvement will be asymmetric across countries,” it said. The recovery path is beset by uncertainty and will remain highly dependent on the development and distribution of a vaccine, effective pandemic management, and government policy support.

”Overall, sustained economic improvement is not possible in countries where new waves of the virus continue to cause disruption,” it said. For the G-20 advanced economies, it forecast a 5.1 percent contraction in 2020, followed by a growth of 4.2 percent in 2021 and 3.3 percent in 2022.

”We forecast a very gradual improvement in economic activity of other emerging market countries, namely Argentina, Brazil, Mexico, India, Indonesia, Turkey and South Africa,” it said. This diverse set of countries had a variance in economic conditions before the pandemic and are responding to the health crisis very differently.

As a result, economic and health outcomes vary significantly. Moody’s said the pandemic could have long-term consequences in four ways — an increase in populism and inward-looking policies in the event of a jobless recovery or a recovery that aggravates inequality, geopolitical realignment, a policy push for a ’greener’ economy, and a technological transformation that could raise productivity while making a large number of jobs obsolete.

”New virus cases are falling in India, Mexico, Brazil and South Africa, and levelling off in Indonesia. The test positivity rate has fallen below 5 percent in India and below 10 percent in South Africa,” Moody’s said. Fatality rates have also steadily declined in most emerging market countries, similar to the trends in advanced economies.

”If these trends are sustained, greater mobility and social interactions will be likely over time. In addition, the development and dissemination of a vaccine will make the pandemic itself a less important macro factor in 2021 and 2022,” it said. However, the economic outlook for emerging market countries is difficult to assess and highly uncertain.

”Going forward, neither trade growth nor a commodity price boom is likely to be a reliable source of growth. And limited room for fiscal support will likely undermine the strength of the recovery. ”On the other hand, economic activity could bounce back quite quickly as restrictions are lifted, simply because staying home without incomes is not an option for many people in these countries,” it added.