Tariff by Trump regime to pose challenge to China; India’s GDP to grow at 6.8% in FY25: S&P Global Ratings
Credit rating agency S&P Global Ratings said on Monday that the incoming US government under President Donald J. Trump will pose a challenge for China and the rest of the nations in the Asia-Pacific region.
Its latest report “Economic Outlook Asia-Pacific Q1 2025: U.S. Trade Shift Blurs The Horizon” published on Monday S&P Global Ratings said: “The impending change in the US administration will be challenging for China and the rest of Asia-Pacific. US tariff increases have become more likely, especially on China, and possible changes in the US macro picture are leading to different interest rate expectations.”
“While much of the region should be able to continue to grow solidly, central banks will probably remain cautious by not reducing their policy rates too fast. And risks have gone up,” the report notes.
As regards India, S&P Global Ratings see the gross domestic product (GDP) growth easing to 6.8% this fiscal year as high interest rates and a lower fiscal impulse temper urban demand.
“While purchasing manager indices (PMIs) remain convincingly in the expansion zone, other high-frequency indicators indicate some transitory softening of growth momentum due to the hit to the construction sector in the September quarter,” the report said.
According to the report, the policy changes by the incoming Trump administration are likely to alter dynamics in the US and the world. In several areas the uncertainty around its plans is too large for the credit rating agency to include changes in the baseline.
“In the case of trade tariffs on Chinese exports, an increase is likely. We have incorporated in our baseline a rise in the effective (weighted average) US tariff on imports from China to 25%, from around 14%, from the second quarter of 2025 onwards. We expect China to retaliate in kind,” S&P Global Ratings said.
While China’s stimulus measures should support growth, US trade tariffs on its exports are likely to harm its economy.
“In all, we now project 4.1% GDP growth in 2025 and 3.8% in 2026; that’s 0.2 percentage point (ppt) and 0.7 ppt lower than our forecast in September,” the report notes.
On the other hand, the Asia-Pacific growth will be impeded by slower global demand and US trade policy. But lower interest rates and inflation should ease their drag on spending power.
And in emerging markets, robust domestic demand growth is buoying GDP growth.
According to S&P Global Ratings, swings in capital flows driven by shifts in expectations about US interest rates and trade policies require central banks to be vigilant and cautious.
“We expect Asia-Pacific central banks to take their time bringing policy rates down,” the report said.
The US Federal Reserve is expected to cut the interest rates in December this year and three rate cuts in 2025 and the terminal level of 3%-3.25% will be reached only in late 2026, the report said.
On the other hand, in the eurozone, where inflation has fallen faster, the credit rating agency expect the policy rate to reach the terminal level of 2.5% already in the first quarter of 2025.
According to the report, the Reserve Bank of India (RBI) is expected to cut its interest rate only once in the current fiscal.
“Consumer inflation is fueled by supply shocks in agriculture, which have driven up food prices. These shocks are linked to changing rainfall patterns and climate change-driven heatwaves. Traditionally volatile and hard to predict, food inflation has become even more capricious lately. The RBI cannot ignore food inflation when considering rate cuts. Food items make up nearly 46% of the inflation basket and persistently high food inflation raises inflationary expectations,” the report said.
(Venkatachari Jagannathan can be reached at venkatacharijagannathan@gmail.com)
