S&P Global Ratings Chief Economist Paul Gruenwald on the Global Economy and India's Economic Outlook
In an exclusive interview with The Times of India, S&P Global Ratings Chief Economist Paul Gruenwald discussed the current state of the global economy and India's economic growth, shedding light on the impact of tariffs and the shifting dynamics of international trade.
The Global Economic Uncertainty:
"Back in April, we were focused on tariffs and the potential downside risks to growth. However, the reality has been quite different. The tariff effects have not been as severe as initially anticipated. The narrative has shifted towards upside risks, with data centers and a capital expenditure boom taking center stage."
"There's still policy uncertainty lingering in the US, which affects the rest of the world. But the overall macro story is more positive than it was a few months ago."
Overestimation of US Tariffs:
"Economists initially overestimated the impact of US tariffs due to three main reasons. First, we expected higher tariff rates, but the final rates were lower than initially announced. The effective tariff rate in the US is around 17%, down from a peak of 30%."
"Secondly, there has been minimal retaliation from other countries, as most accepted the tariffs as a cost of doing business with the US. China was an exception, but the recent extension between Presidents Trump and Xi has reduced the likelihood of significant retaliation."
"Lastly, companies, wholesalers, retailers, and importers have absorbed most of the tariff costs through margin compression rather than passing them on to consumers. The impact on manufacturing relocation to the US has been less severe than expected."
India's Economic Perspective:
"India and Brazil are among the economies with unresolved large tariffs. There's a possibility of an agreement soon, which would alleviate the uncertainty for India. The US is now perceived as a less reliable partner, prompting countries to diversify their trade and investment."
"India's relatively closed economy and reduced dependency on the US give it an advantage. However, this shift away from the Washington consensus is a global trend."
"India's growth trajectory of 6.5% over multiple years is impressive. If the country can maintain this pace, it has a bright future ahead. A strong growth rate of 6% to 7% is nothing to be ashamed of."
Investor Outlook on India:
"India is the fastest-growing major emerging market, and its growth baton has passed from China."
"The country has numerous tailwinds and a runway for long-term, sustained growth. With a compounding effect, India's future looks promising."
