The latest downgrade came as part of the global ratings agency’s report on deteriorating credit conditions in the Asia-Pacific region. It cited declining credit quality due to rising defaults resulting from a demand slump as the Covid-19 outbreak persisted in many countries.
“While lower official interest rates and government stimulus actions provide some relief, the slump in demand is likely to lead to declining credit quality and rising defaults, particularly among non financial corporates with weaker credit profiles,” the report said.
The earlier downgrade to India’s FY21 growth rate came two weeks ago on March 17, before the 21-day lockdown was announced by Prime Minister Narendra Modi. S&P had cited global recession affecting the Asia-Pacific region while lowering its India estimate to 5.2% from 5.7% in February.
India Ratings & Research also revised its FY21 forecast to 3.6% from 5.5% earlier. “The key reasons are the spread of COVID-19 and the resultant nation-wide lockdown imposed till 14 April 2020, crippling most economic and commercial activities,” the report released on Monday said. It also lowered its FY20 estimate to 4.7% to account for disruptions in March.
On Friday, Moody’s Investor Service also halved its forecast for India’s growth in 2020 to 2.5%, down from 5.3% earlier.
Along with a 5% growth forecast for FY20, the S&P expects a sharp uptick in the Indian economy to 7.3% in FY22, according to the latest report.
Although China is gradually returning to normalcy, the worsening impact of the virus outbreak in other economies of the region was weighing on the aggregate growth, the ratings agency said.
“Despite the slow return to normalcy in mainland China, the sharp rise in COVID-19 cases in the rest of the Asia-Pacific is translating to an environment at least as challenging as the 1997-1998 Asian Financial Crisis for borrowers,” the report said.
While maintaining its China 2020 growth forecast from the March 17 report at 2.9%, S&P has further downgraded its Asia-Pacific growth estimate to 2.2% from 2.7% in an earlier report.
Acknowledging the high degree of uncertainty, the report said downside risks to its estimates remain. “Top risks include COVID-19 containment failing, risk-aversion affecting financing, commodity price volatility increasing, and U.S.-China dispute reigniting,” it said.
In another report, the ratings agency had estimated a total and permanent income loss of $620 billion for the region resulting from the Covid-19 pandemic.
Thus far S&P has taken 47 ratings actions related to COVID-19 in the Asia-Pacific region.