The U.S. economy is showing signs of a slowdown, with GDP growth dropping to 2.8% in 2024. This downturn follows inflationary pressures and significant tariffs imposed under Trump’s administration, which have initiated a trade war. The slowing economy is expected to hamper India’s growth prospects, especially since it relies heavily on exports to maintain its economic targets.
Recent indications point to a slowdown in the U.S. economy, which could have significant repercussions worldwide, particularly for countries like India. In 2024, the U.S. GDP experienced modest growth of 2.8%, slightly down from 2.9% in 2023. Despite a dismal 1.6% growth in the first quarter, successive quarters saw a boost due to increased consumer and government expenditures, which drove growth up to 3.0% and 3.1% during Q2 and Q3, respectively. However, the growth rate fell again to 2.3% in Q4 due to weakened private investments and declining exports.
The beginning of Trump’s presidency saw the imposition of significant tariffs, including a 25% duty on imports from Canada and Mexico, along with a 10% tariff on China. These duties are part of a broader trade war with retaliatory tariffs from these countries, escalating tensions in global trade dynamics. No new tax cuts have been introduced to stimulate spending, as the proposed budget by the House of Representatives seeks to maintain fiscal discipline amidst tariffs and economic uncertainty.
Predictions from the Federal Reserve indicate a potential contraction of 1.5% in U.S. GDP for the first quarter of 2025, with issues such as decreased consumer spending and lower private investment being cited as key factors. As consumer confidence wanes, businesses are becoming more hesitant to invest, contributing to this anticipated economic decline. Morgan Stanley has noted that tariffs could reduce U.S. growth by as much as one percentage point.
The implications of a slowing U.S. economy are profound, particularly for India, where slower global growth could hinder its economic expansion goals. The global growth rate is expected to decline to 3.3% in 2025, below historical averages, primarily influenced by the trade war initiated by Trump’s tariffs. To achieve a target GDP growth of 6.5% for 2024-2025, India needs exceptional foreign exports performance, which is at risk amidst a weakening U.S. economy.
The U.S. economic slowdown poses a multifaceted threat to the global economy, which will affect international trade and consequently impact emerging markets like India. The trade war initiated through tariffs could exacerbate these challenges, leading to reduced GDP growth in the short to medium term. Overall, significant reliance on exports makes India particularly vulnerable to changes in U.S. economic performance.
Original Source: www.livemint.com
