SBI Research suggested that the sharp economic rebound following COVID-19 was largely driven by an unprecedented policy response rather than sustainable growth. The long-term trend, however, points to a deceleration in GDP expansion. The US economy grew by 3.2 per cent in Q4 2023, but this slowed to 2.5 per cent in Q4 2024. The Atlanta Federal Reserve’s GDPNow model estimated a contraction of 2.4 per cent for Q1 2025, marking a significant reversal from earlier growth projections.
Private consumption, a key driver of the US economy, has been declining since 2000. The report highlights that while inflation (CPI) has eased, the delayed impact on demand is expected to weigh on economic activity. In January 2025, the Personal Consumption Expenditures (PCE) index—widely regarded as a key measure of consumer spending—declined for the first time in nearly two years.
US economy may be heading for a downturn, with slowing GDP growth, weak private consumption, and stagnant exports, according to SBI Research.
The Q1 2025 GDP is projected to contract by 2.4 per cent.
Rising debt, high labour costs, and trade tensions, including new tariffs, add to uncertainty.
In contrast, India remains resilient, attracting record FII inflows and pursuing strategic FTAs.
Additionally, real private investment has been stagnant since 2020, with high wages acting as a deterrent for new business expansions. The average employer cost for private industry workers reached $31.47 per hour in December 2024, which, according to the report, could discourage large-scale investments in traditional manufacturing sectors.
The report highlighted a secular rise in the US debt-to-GDP ratio, raising concerns about long-term fiscal sustainability. At the same time, the US dollar has exhibited cyclical trends, showing resilience despite the increasing debt burden. However, SBI Research warned that drastic federal spending cuts could have disastrous consequences, potentially undoing economic progress made over previous decades.
The imposition of a 25 per cent tariff on steel and aluminium imports by the Trump administration on March 13, 2025, has added to economic uncertainties. The report noted that India, which has a trade deficit with the US for aluminium ($13 million) and steel ($406 million), could benefit by exploring alternative markets. However, the report also estimates that Indian exports to the US could decline by 3–3.5 per cent due to potential reciprocal tariffs.
The report also raised the possibility of an economic recession, given the downward trajectory of key economic indicators. As economic growth slows and trade uncertainties rise, the US economy faces a period of heightened risk. However, SBI Research suggested that structural reforms, coupled with private sector expansion and technological advancements, could help stabilise growth in the long run—though such adjustments may come with short-term costs.
Despite global economic headwinds, the report highlighted India’s resilience, particularly in foreign institutional investment (FII) inflows. India attracted $41 billion in FII investments in FY24, the highest since FY16, with robust inflows into sectors like telecommunications, healthcare, and capital goods.
Moreover, India’s proactive free trade agreement (FTA) strategy—negotiating deals with the UK, EU, and Canada—could further bolster its economic position. The report estimated that India’s FTA with the UK alone could increase bilateral trade by $15 billion by 2030.
Fibre2Fashion News Desk (KD)
