The US stock market is reeling, with the S&P 500 dropping over 10%, driven by President Trump’s trade war. Economists warn of potential US recession risks and global economic uncertainty. While India’s Sensex has fallen 14%, experts remain optimistic about its long-term growth, supported by robust fiscal and monetary policies. Challenges include tariff impacts on exports and currency fluctuations. However, India’s limited trade exposure to the US and focus on domestic infrastructure expansion position it as a resilient bright spot in a turbulent global economy.
The US stock markets are in disarray, with the S&P 500 plummeting over 10% from its peak just last month. At the heart of this chaos lies President Donald Trump’s trade war, which has economists on edge as they assess the potential consequences for the US economy. Concerns of an impending recession or stagflation—where growth stagnates while inflation soars—are gaining traction. In this climate of uncertainty, what do these developments mean for India? Here’s a closer look at expert insights and India’s economic outlook amidst the global turbulence.
US Trade War Sparks Economic Worries
Trump’s trade war, which he himself declared, is being perceived as a significant hurdle for the US economy. Experts have warned that the tariffs could lead to higher consumer prices, slower economic growth, and job losses. This comes as a contrast to the US’s recent economic strength, which had been marked by strong GDP growth and declining inflation following the COVID-19 pandemic.
“There is a period of transition because what we’re doing is very big—we’re bringing wealth back to America,” Trump said during an interview with Fox News.
The Tariff Strategy That Caught Everyone Off Guard
According to Sachchidanand Shukla, Group Chief Economist at L&T, the timing and sequence of Trump’s tariff decisions have taken many by surprise. “Most expected him (Trump) to target China first, but he announced 25% tariffs on US allies like Mexico and Canada and only later applied 10% tariffs on China. Also, with all the uncertainty around tariffs and the impact on the economy, people tend to postpone consumption, investment, and trade decisions, which can impact the real economy,” Shukla explained to TOI.
Is the US Heading for a Recession?
Recessions typically occur when GDP contracts over two consecutive quarters, and their effects are often uneven and costly. Reuters reports that the current market volatility, compounded by the impact of Trump’s trade policies, could result in a recession. Diane Swonk, Chief Economist at KPMG, noted that a recession by early next year "cannot be ruled out." She added, “A price shock on its face, the tariffs could also begin to kill demand.”
DK Srivastava, Chief Policy Advisor at EY India, expressed concerns over a significant slowdown in the US economy. “The main reason for this would be the expected adverse impact on aggregate demand due to various cuts in government programs and salaries to government employees being currently implemented in the US,” he told TOI. However, he believes this slowdown might be temporary, with recovery likely as cost-cutting measures and lower energy prices take effect.
Meanwhile, Madan Sabnavis, Chief Economist at Bank of Baroda, is more optimistic. He sees the tariffs as a tool to boost domestic production rather than a trigger for a recession. “If other countries do lower tariffs, it can boost US exports on the other side,” he said, suggesting a recession in the US may not materialize.
The Trump Administration’s Calculated Approach
Despite recession fears, the Trump administration appears unfazed. Commerce Secretary Howard Lutnick even suggested that a recession would be "worth it" to implement Trump’s policies. Shukla believes the administration is focusing on "Main Street over Wall Street" and is willing to endure short-term economic pain to achieve long-term goals.
How India Fits Into the Picture
India, too, has felt the ripple effects of global economic uncertainty. The BSE Sensex has witnessed significant corrections, dropping nearly 14% from its all-time high of 86,000. A mix of factors, including market overvaluation, slower-than-expected GDP growth, tight liquidity from the RBI, and global instability linked to Trump’s trade actions, have contributed to the decline.
Still, there’s optimism about India’s long-term trajectory. Morgan Stanley has maintained its year-end Sensex target of 105,000, with Ridham Desai, the firm’s Equity Strategist, predicting a recovery as fundamentals improve. India’s GDP growth slowed to 5.6% in Q2 FY2025 but has since rebounded to 6.2% in Q3.
India’s Challenges and Opportunities
Madan Sabnavis identified two key challenges for India. First, reducing tariffs on US imports could affect domestic industries. Second, higher US tariffs on Indian goods might push the US to explore alternative markets, potentially impacting Indian exports. “The latter is more of a concern right now as the US is our major export destination,” he explained.
Shukla offered a more reassuring perspective, emphasizing that India’s trade exposure to the US is relatively small. “From India’s point of view, our linkages to the US are far lower on trade. We don’t export or import in high numbers as some other large exporters to the US,” he said. However, he cautioned that a US slowdown could influence dollar-denominated flows to India, such as portfolio investments and FDI, as well as the currency.
DK Srivastava highlighted that India is already grappling with global uncertainties, which could be exacerbated by US tariff changes. Still, he expressed confidence in India’s ability to mitigate these effects through domestic policy measures, particularly government infrastructure expansion, which has strong multiplier effects. He also noted that lower global energy prices could benefit India.
India’s Edge in a Difficult Global Landscape
Amid global economic struggles, India stands out as a bright spot. “China is seeing deflation, Europe has its own issues—a 6-6.5% growth for India seems achievable,” Shukla noted. He stressed that India’s fiscal and monetary policies are aligned to sustain growth. The government’s focus on capital expenditure and the RBI’s liquidity measures are keeping the economy on track.
“India is relatively better placed than other major economies to deal with US economic disruptions,” Shukla concluded.
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