Global Economic Outlook and Trade Policy Uncertainty
Uncertainty surrounding the United States (US) trade policy remains a central theme in global economic discussions. The International Monetary Fund (IMF) in its October World Economic Outlook (WEO) highlighted that although downside risks to global growth have decreased since April, they remain significant.
Impact on Economic Growth
- The IMF has revised the US growth projection for the current year by an increase of 10 basis points to 2%.
- India's growth projection has been increased by 20 basis points to 6.6% due to better-than-expected first-quarter outcomes.
- Despite these revisions, the ongoing uncertainty could mitigate the significance of these adjustments.
US-India Trade Relations
- The US has imposed a 50% tariff on imports from India, prompting Indian negotiators to seek a beneficial trade agreement with the US.
- This tariff is a part of wider trade uncertainty affecting large exporting economies due to higher US tariffs.
Investment and Policy Uncertainty
- Policy uncertainty, including tariffs and immigration changes, impacts investment decisions.
- A one standard-deviation increase in policy uncertainty can lead to a 2% drop in investment, peaking two years after the initial shock.
- Immigration policy changes in the US could affect sectors like construction and hospitality, leading to inflationary pressures.
Forecasts and Global Trade Dynamics
- The global economy is projected to grow at a 3.2% average annual rate between 2027 and 2030.
- Trade tensions between the US and China are rising, influencing global trade dynamics.
- World Trade Organization economists have revised merchandise trade growth for 2025 to 2.4% but lowered 2026 projections to 0.5%.
- Growth in exports of services is also expected to slow down from 6.8% in 2024 to 4.4% in 2026.
Strategic International Engagement
While engaging with the US, India is advised to expedite other trade agreements, such as with the European Union, to bolster its economic resilience amidst global trade uncertainties.
