India in crosswinds: US sneeze, Chinese cough, and global shivers

Some analysts feel that a US recession has already begun. There is an old saying, when the US catches cold, the rest of the world sneezes. Can you see Indians reaching for their handkerchiefs?Quarterly GDP growth in the US fell by 0.3% in the first quarter, Jan-March. A recession is widely defined in the US as a fall in GDP for two successive quarters. The National Bureau of Economic Research, which delivers the final verdict, adds another condition — economic activity must be affected substantially. That verdict will take many months more to be delivered. But the signs are unfavourable.Major institutions are downgrading their GDP growth forecasts for the whole world and individual nations like India. The IMF has cut its 2025-26 forecast for India from 6.5% to 6.2%. But this is just a first volley based on current uncertainty. Worse will follow.The US has so far imposed a 10% tariff across the board plus 145% for China, and 25% on steel, aluminium, and autos. This alone means the highest US tariffs since the Great Depression.Trump has threatened further high reciprocal tariffs on all trading partners which are on pause for 90 days. Optimists hope for a happy US resolution with most trading partners within these 90 days. Pessimists say Trump cannot forego high tariffs to have any chance of diverting lost jobs back to the US. He wants to go down in history as the man who changed America, not as the one that was all bark and no bite. In any event, he is not the sort of person to suddenly go quiet after 90 days in office. He will for his full term keep returning to his favourite theme of using tariffs to Make America Great Again.The uncertainty created by Trump is guaranteed to slow world growth. No company knows how much to invest, where, and when. They will keep plans on the back burner, awaiting more certainty. Consumers too will avoid spending sprees —they know the economy could turn nasty. Slowing consumption and investment mean a recession. India cannot escape the consequences even though it will be less hard hit than others. 120854495Some US analysts believe that a recession has already started. Others are less downbeat. Jason Furman of Harvard University points out that the GDP data for the first quarter were seriously distorted by companies and individuals importing goods like crazy to stock up on the cheap before the 90-day pause expires and prices soar. Going by alternative measures such as ‘core GDP growth’, Furman estimates that the US economy actually rose and did not fall in the first quarter. But he and others warn that the import tariffs already announced are sufficient to seriously slow the US economy. China, the second largest economy in the world, was already slowing before Trump’s stratospheric tariffs and will now slow even more. When the two biggest economies slow down, the rest of the world cannot but follow suit.Optimists will point to the fact that stock markets in both the US and India look cheerful right now. The Dow Jones index reached a peak of 44,882 just after Trump assumed office, hoping for generous cuts in income tax and corporate tax without damaging import tariffs. On hearing of his reciprocal tariffs, the Dow plunged to 37,645. But after Trump announced his 90-day pause, the Dow recovered again to 41,317 by May 2. No sign of panic here.The stock markets in India too show no sign of panic. The Nifty reached a peak of 26,216 last September just before it became clear that Trump was likely to be a big winner in the US Presidential election. It then slid steadily down to a low of 22,082 on hearing of reciprocal tariffs. But after the 90-day pause, it has recovered to 24,346.Does this mean all is hunky dory? No. The markets are highly volatile up and down, driven by greed and fear. Fear drove them down when Trump announced reciprocal tariffs high enough to guarantee a recession. Once Trump paused his tariffs, greed took over as investors sought to recover lost ground. But as the 90-day deadline nears, expect fear to take over again.My personal take is that a recession will begin in the April-May quarter if it has not begun already. It will be a deep recession, not a shallow one. India is resilient and will be hit less than other emerging markets but will take a painful hit too. Trump’s remaining three years will contain more ugly surprises. These may include a second recession within four years. Like Ulysses, let us prepare for a long, perilous voyage.