Moody’s Revises Expected GDP Growth for Pakistan Amid Coronavirus Outbreak

Moody’s Investors Service has revised the Gross Domestic Product (GDP) forecast for Pakistan from 2.9 percent to 2.5 percent i.e. by 0.4 percent for 2020.

Moody’s has revised its forecasts for most APAC economies on coronavirus implications, incorporating ongoing travel restrictions and heightened containment measures, as well as the recent oil price shocks.

The credit rating agency, in its report on Pakistan released last month, had stated that real GDP growth will remain below potential at 2.9 percent in 2020. “We expect real GDP growth of just 2.9 percent for the fiscal year ending June 2020, down from 3.3 percent in 2019 and 5.5 percent in 2018.”

However, in its latest report “Sovereigns – Asia Pacific Regional credit outlook update on evolving coronavirus impact” issued on Tuesday, the GDP growth rate for Pakistan has been forecast at 2.5 percent for 2020 and 3.5 percent for 2021.

The report stated that dampening of domestic consumption demand in affected countries exacerbates disruptions to supply chains and cross-border trade of goods and services; the longer the disruptions last, the greater the risk of global recession becomes.

“Our new baseline assumes a pullback in consumption and ongoing disruption to production and supply chains in the first half of 2020, followed by a recovery in the second half. In the short run, this is playing out as both negative supply and demand shocks. Risks remain firmly to the downside, including from a much weaker European and American economy than currently assumed.

Also, rising rates of infection would drive global sentiment even lower, heightening asset price volatility, and tightening financing conditions, which could snowball into deeper economic contraction”, said the report.

Moody’s stated that forecast for Chinese real GDP growth at less than 5% assumes that normalization of economic activity will take time and that weaker demand in China’s export markets will continue to dampen aggregate demand, even as coronavirus infection rates plateau.

It is assumed no growth in Japan and Singapore, and deeper contractions in Hong Kong and Macao in 2020. Forecast revisions also incorporate lower commodity prices, ongoing travel restrictions and heightened containment measures, maintained the report.

A number of governments have announced fiscal stimulus packages or larger-than-expected budgets featuring temporary and targeted measures to deal with the immediate impact of the coronavirus outbreak on households and affected sectors. Further fiscal measures are likely as extent of economic fallout becomes clearer, but some governments—mainly frontier markets—may be constrained by already high indebtedness and constrained access to funding.

Central banks and financial regulators have started to ease policy rates or allowed regulatory forbearance, although extent of further easing may be limited by already very low rates in some economies, it added.

It further stated that tighter funding conditions and exchange rate depreciation could stress sovereigns with high foreign currency exposure, heavy reliance on external market funding or inadequate foreign currency reserve coverage. Among frontier economies, only Sri Lanka faces a maturing international bond in 2020. Lower oil prices will ease pressures on trade and current account deficits for oil-importing countries, it added.

Source: Pro Pakistani