The escalating trade war between the US and China has raised fears of a global economic downturn and heaped pressure on policymakers around the world to roll out more stimulus. Shaun Roche, chief Asia-Pacific economist, S&P Global Ratings, said the politics of the whole trade environment has become unpredictable and the policy uncertainty does have an economic effect.
The investment growth in trade-dependent economies in Asia is at the weakest level in seven years, he said in an interview with CNBC-TV18. “So even if all these don’t happen in direct terms, they don’t move the growth needle that much. They can have real economic effects and that is already starting to be felt across the global economy,” said Roche.
Roche believes the bias for interest rates across nations will either fall or remain on hold due to rising global risks, policy uncertainty and below target inflation. He said the US Federal Reserve will hold interest rates this year. "If our forecasts are correct, we don’t see a cut but we do see an insurance cut coming through if trade policy risks continue to rise.”
Roche expects the Reserve Bank of India to cut interest rates by 25 basis points supported by lower oil prices. One rate cut is for sure coming but further rate cuts would depend on what the external environment looks like, he added.
According to him, given the current US-China friction there is a window of opportunity for economies like India because there is a possibility that global trade networks will be reviewed and those economies that can force through structural reforms to attract foreign direct investment (FDI) could be winners in this process. “For India the focus should be on reforms through land and labour markets to facilitating more FDI and make it easier for foreign firms to do business in India,” he said.
With regards to Indian GDP growth, he said it would grow to around 7.3 percent but one needs to keep an eye on external risks.