The pain of the United States, the harvest of India? The U.S. recession may actually help
Another global challenge amid Trump’s tariff tantrums is the emergence of: the possible recession in the United States may cause more trouble to the global economy. But the economic pain in the U.S. could actually benefit India due to Trump’s tariffs. Brokerage Bernstein said the U.S. recession is positive for India’s economy.
Also Read: Trump’s New Trade Tariff Twist Could Shake India’s Cost Game
Is the United States entering a recession?
Within a few months, in the United States, Trump’s hope of putting money into the economy becomes the formation of a “trump card”. Trump’s tariffs shocked investors, fearing that the downturn drove a stock market sell-off. A new series of Trump policies have increased uncertainty among businesses, consumers and investors.
A recent Deutsche Bank survey has raised alarms on the U.S. economy, indicating that there is a 43% chance of a recession in the next 12 months, according to a report. The results of the survey highlight concerns expressed by consumers and business leaders about the recession or slowdown in other sentiment surveys, CNBC reported. JPMorgan’s Bruce Kasman believes that if Trump’s new tariffs take full effect, the risk of a recession could be more than 50%.
Read Also: Recession Storm Brewed: Trade War and Weak Spends Could Rattle U.S. Economy
A survey showed that confidence in U.S. consumers fell for the fourth straight month in March, with families most pessimistic about the most pessimistic people in 12 years. Jim Walker, chief economist at Aletheia Capital, highlighted a research report and said he would be surprised if the U.S. economy can avoid an upcoming potential recession. “In the United States itself, we would be surprised if the recession can be avoided, especially if efforts to limit fiscal spending are successful. In the second half of the year, the risk of an economic recession will indeed surface as the White House trade policy fades, the Fed is growing, and is expected to be guarded along the market.”
How India Benefits from the U.S. Recession
According to Investing.com, Bernstein believes that given the country’s unique economic resilience and strong domestic drivers, India could be a winner if the U.S. economy enters a recession. “In the past, the largest and fifth largest economies were often quite independent of each other and had no close ties,” Bernstein analysts said.
The broker’s positive attitude towards India’s stock market after a cautious outlook in 2024, insisting that India’s macroeconomic recovery is already underway and now has potential global challenges.
Historically, India’s economy has little correlation with the United States, and it often continues to grow even if the United States slows down. Bernstein’s analysis shows that India’s GDP growth tends to decrease before sharp contractions in the United States, and growth in the September 2024 quarter is likely to mark a low. Despite external headwinds, India’s economy can continue to recover.
According to Bernstein, India’s limited reliance on the U.S. discretionary market may be in its favor. Key exports such as medicines, IT services, jewelry and petroleum products remain relatively isolated from the U.S. downturn. General medicines are an essential commodity, IT services have absorbed weak disposable spending, and jewelry and oil exports have made a huge contribution to India’s overall net exports. Although automotive components and clothing may see some impact, their share of total Indian exports is too small to significantly impact the wider economy.
Foreign outflows that have put pressure on the Indian market in the past six months also appear to be slowing down. Despite $28 billion flowing since October, the market is correcting that it is less severe than the severity of the global financial crisis or the COVID-19 pandemic.
A weaker U.S. economy could also lead to lower prices for commodities such as crude oil, copper, aluminum and steel, thereby reducing India’s import bills and keeping inflation lower. This could stabilize the rupee and pave the way for further cuts, thereby boosting the domestic economy in the second half of 2025.
Bernstein suggests that while the Indian market has corrected 10% from its peaks and similar areas, while the car has dropped by 20%, the phase makes the quiet recovery phase.
How difficult is Trump’s tariffs to break into India’s economy?
S&P Global Ratings said that although the threat of the new U.S. government’s tariffs are usually cargo, India will remain resilient because a large portion of its exports are made up of services. While Asia-Pacific economies may feel the impact of U.S. tariffs and the driving force for globalization, domestic demand in these regions will remain modest. This will only lead to a slight revision of the gross domestic product (GDP) forecast, the agency noted.
A Union Bank of India research report says India’s economy could be protected from the full impact of U.S. trade tensions due to a trade balance with the United States, although the ultimate impact will depend on the outline of the trade agreement between the two countries. India’s financial system is feeling indirect effects, especially through currency volatility and liquidity conditions as global markets respond to uncertainties in tariffs and economic policies under the Trump administration.
A report by Motilal Oswal recommends that India may have a chance to strengthen its domestic industry under the influence of Trump’s tariffs. The report mentioned that while tariffs pose challenges such as rising costs, exchange rate fluctuations and potential losses in exports, they also open up avenues for India to focus on self-reliance and promote local production. Despite the uncertainty of tariffs, India could take advantage of the situation by promoting domestic production, encouraging local investment and improving trade agreements with other countries, the report said.
