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US-China trade tension to dent global growth, India GDP to slow too: Report

Slowdown in global growth and trade is likely to dent GDP growth in India as well, with analysts at Nomura expecting it to slow to 6.8% in FY19

Puneet Wadhwa  |  New Delhi 

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The ongoing tussle on trade between the (US) and will dampen and adversely impact corporate confidence and capex, says the latest Global Economics report by

The team led by Chetan Ahya, their chief economist and global head of economics, along with Derrick Y Kam, Nora Wassermann and Frank Zhao estimate a negative impact of 30 – 40 basis points (bps) on in case the trade tensions were to re-escalate with the US hiking the tariffs on $200 billion worth of Chinese goods to 25 per cent from the current 10 per cent. Their base case, however, remains that this phase would be temporary.

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Their base case, however, remains that will recover from the trough of first quarter in 2019 (estimated at 3.2 per cent) by the end of the year. The risk to global growth cycle, however, would be if the damage to corporate confidence as a result of the GDP slowdown gets entrenched and spending does not pick up. All this, they believe, could see tighter financial conditions unfold.

The threat of a ratcheting up of US tariffs on and an elevated trade dispute has not been discounted by equity yet, caution analysts at Jefferies. Over the past two sessions, global have been rattled by the prospects, with the market falling around 6 per cent on Monday, recoding its worst fall in over three years.


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“There is a growing probability that the fourth scenario of a more ‘Protracted Trench Warfare’ in which a stalemate is achieved with both parties unable to back down is rising. Equally, tariffs remain in place while there is no easing in tensions or rhetoric. We do not feel the equity have in any way priced this outcome,” wrote Sean Darby, chief global equity strategist at Jefferies in a co-authored report.

IMPACT ON INDIA

This slowdown in global growth and trade is likely to dent GDP (gross domestic product) growth in India as well, with analysts at expecting it to slow to 6.8 per cent in financial year 2019 – 20 (FY20) from 7 per cent recorded in FY19.

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In comparison, The (RBI) and consensus estimates had pegged the GDP growth to accelerate to 7.2 per cent in FY20; while the IMF saw growth at 7.3 per cent.

“We expect GDP growth to slow to 6.2 – 6.3 per cent in the first half of 2019 (H1-2019) from 6.6 per cent in Q4 2018, as the (negative) trade and terms-of-trade channels weigh in. Global growth will be an important determinant of the quarterly profile of domestic growth, which we expect to pick up pace in the second-half of 2019 (H2-2019),” wrote Sonal Varma, managing director and chief India economist at in a co-authored report with Aurodeep Nandi.

First Published: Tue, May 07 2019. 13:21 IST
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