Moody's Warns Of Unprecedented Shock To G-20 Economies From Coronavirus

WASHINGTON (UrduPoint News / Sputnik - 25th March, 2020) The Group of 20 economies will experience a shock like never before from the crisis forced by the novel coronavirus pandemic, although they could rebound by next year, ratings agency Moody's warned in an outlook on Wednesday.

"The G-20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021," Moody's said, referring to the world's most developed countries. "We have revised our growth forecasts downward for 2020 as the rising economic costs of the coronavirus shock and the policy responses to combat the downturn are becoming clearer."

Moody's said it now expected G-20 real GDP to contract by 0.5 percent in 2020, and pick up to 3.2 percent growth in 2021. "In November last year, before the emergence of the coronavirus, we were expecting G-20 economies to grow by 2.6% in 2020," it said, outlining the contrast between the two outlooks.

Moody's also noted that fiscal and monetary authorities were increasingly stepping up the level of support they could provide their economies to avert permanent damage to households and businesses.

"Globally, authorities are adopting important policy measures such as income guarantees and regulatory forbearance in an effort to reduce the risk of simultaneous defaults weakening financial stability," Moody's said. "We expect policy measures to continue to grow and deepen, as the consequences of the shock in terms of depth and duration become clearer."

Despite such stepped-up efforts, downside risks to growth remain sizable, the ratings agency said.

"business activity will likely fall sharply across advanced economies in the first half of 2020," it said. "Although supportive fiscal and monetary policy measures will likely aid recoveries with above-trend growth in the subsequent quarters and in 2021, the output loss in the second quarter is unlikely to be recovered.

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Moody's projected cumulative contraction over the first and second quarters of 2020 of 5.4 percent in Germany, which it rated at "Aaa stable"; 4.5 percent in Italy (Baa3 stable); 4.3 percent in the United States (Aaa stable); 3.9 percent in the United Kingdom (Aa2 negative); and 3.5 percent in France (Aa2 stable).

As for China, Moody's forecast a real GDP growth of 3.3 percent in 2020, followed by 6.0 percent growth in 2021.

"Slow improvement in consumer demand will temper the pace of China's (A1 stable) recovery," it said. "In other emerging market countries, a sharp reduction in GDP in the second quarter is also inevitable especially where strict containment measures have been imposed."

Recovery in emerging markets will likely be relatively more muted than in advanced economies, Moody's said, adding that a general lack of social safety nets, weaker ability to provide adequate support to businesses and households, and inherent weaknesses in many of the major emerging market countries will amplify the impact of the shock.

"Given the tremendous uncertainty, there is a range of plausible outcomes. The risks to our baseline forecasts remain firmly to the downside. In particular, a sustained pullback in consumption and prolonged closures of businesses would hurt earnings, drive layoffs and weigh on sentiment," it said.

The longer these conditions persist, the more they would potentially feed "self-sustaining recessionary dynamics," and expose existing vulnerabilities in the real economy and in financial sectors, Moody's added.