The impending growth slowdown in the United States is set to hamper the growth trajectory of India in the medium term.

FREMONT, CA: The medium-term growth trajectory of India is expected to be hampered by the coming decline in US economic growth. The Indian economy is currently returning to above-normal levels and is being driven by broad-based gains in consumption, investment, industry, and the external sector.  In March 2022, the service sector was about 4pp behind pre-Covid levels; however, it is currently heading close to 40pp above those levels. This improvement is anticipated to boost the Indian economy's trajectory of growth soon. However, India's economy is projected to experience a growth slowdown in the medium term with a prolonged mild recession in the US, as predicted by the firm. As a result of rising inflation, India is the only Asian nation with the highest inflation rate.

In light of tightened financial conditions, a hit to consumer confidence, intensifying disruptions in the supply of food and energy, and dimming prospects for global growth, the US economics team has revised down its base case for the US economy to a mild recession beginning in Q4 2022. Around 18 per cent of India's exports of goods are made to the US, as are more than 60 per cent of its exports of IT-ITeS. Additionally, the prognosis for India's export and investment is likely to be negatively impacted by the slower overall global economy. Indicators point to a broader growth slowdown for India over the medium term when combined with elevated inflation levels that are undermining consumption growth and the growth sacrifice caused by restrictive banking conditions. Nomura projects that India's GDP would increase by an average of 7.2 per cent annually in 2022 before slowing to 5.4 per cent in 2023, with downside risks.

Whether it be the stock market, commodities, or rates, all have dropped recently due to the growing likelihood of a recession. There is disagreement among experts as to whether or not America is currently in a recession. Central banks, including the US Federal Reserve, have aggressively raised interest rates to stop inflation from spiralling out of control. An economic downturn will probably result from this. The real gross domestic product (GDP), which was previously expected to grow by 2.5 per cent in fiscal 2022, will only grow by 1.8 per cent. Instead of expanding by 1.3 per cent as the bank had anticipated, the US GDP is predicted to contract by one per cent in fiscal 2023. The economists predict a modest recession nonetheless because Americans have built solid financial foundations and collected money. Despite tightening Fed policies that will increase the cost of credit and other types of borrowing, the money will help consumers weather the downturn. The Fed increased interest rates by three-quarters of a percentage point earlier this month, which was the biggest increase since 1994 for the institution. Similar decisions will likely be made at Fed meetings in July and even beyond if prices stay high. The Federal Reserve's move was made public days after the May Consumer Price Index revealed an increase in inflation of 8.6 per cent, the highest level since 1981.