Impact of U.S. Economic Slowdown on Global Markets: Focus on India

The U.S. economy shows signs of slowing, influenced by tariffs from President Trump’s administration. With GDP growth decreasing from 2.9% in 2023 to 2.8% in 2024, and projections forecasting further decline, the ripple effects on global markets, particularly India, could be significant. India’s growth aspirations are complicated by this external economic environment and the ongoing trade conflict.

Recent indicators show that the United States economy is demonstrating signs of a slowdown, a situation that could be exacerbated by President Donald Trump’s implementation of additional import tariffs. As analysts assess the contributing factors to this contraction, they also examine the potential implications for the global economy, particularly for nations like India.

In 2024, the US experienced a Gross Domestic Product (GDP) growth of 2.8%, slightly declining from 2.9% in 2023. The year commenced with subdued economic activity, as evidenced by a mere 1.6% GDP growth in the first quarter—the lowest since Q3 of 2022. Subsequent quarters (Q2 and Q3) displayed improved performance, with growth rates reaching 3% and 3.1%, primarily driven by an increase in consumer spending, government expenditure, private investments, and exports.

Nonetheless, by the fourth quarter, growth decelerated to 2.3% due to diminishing private investments and a downturn in exports. The initial boost to growth stemmed from robust consumer and government spending. Following President Trump’s inauguration, significant tariffs were imposed, such as a 25% duty on imports from Canada and Mexico—America’s largest trading partners—and a 10% tariff on imports from China.

These tariffs, coupled with retaliatory measures from Canada, Mexico, and China against US goods, have initiated a comprehensive trade conflict. There have been no new tax reductions to counter this economic downturn; although, Trump has proposed to allocate half of the savings from departmental efficiencies to assist American citizens while the remainder aims to reduce national debt. However, there is skepticism regarding the feasibility of generating the projected savings from a largely allocated budget.

Forecasts on economic growth remain concerning, with the Federal Reserve of Atlanta’s GDPNow model predicting a contraction of 1.5% in Q1 of 2025. This projection is attributed to decreasing consumer spending—which represents two-thirds of the GDP—alongside declining private investments and exports. Notably, consumer spending fell by 0.5% in January, compounded by diminishing consumer confidence as households brace for rising prices.

For India, this anticipated slowdown in the US economy poses significant challenges, as it can adversely affect global economic growth—forecasted to progress at just 3.3% in 2025, below historical averages. The ongoing trade hostilities instigated by Trump’s tariffs further complicate India’s economic landscape. To achieve a growth rate of 6.5% for the fiscal year 2024-25, India requires a substantial GDP growth of 7.6% in the fourth quarter, heavily reliant on strong export performance, which is now jeopardized by the economic conditions in the US.

In summary, the current slowdown of the U.S. economy poses substantial risks not only domestically but also for global economic stability, particularly affecting nations like India. The trade war initiated by tariffs is expected to continue impacting exports, a critical component for India’s growth goals. Projections indicate a challenging road ahead, necessitating careful navigation of economic policy to ensure sustainable growth amidst international uncertainties.

Original Source: www.livemint.com