Economy
Global news wrap: Tariff tango, slowdown fears, monetary policies
Summary
- US President Donald Trump has indicated a softer stance ahead of the roll-out of reciprocal tariffs next week, while global growth is projected to slow down in 2025 and 2026. Meanwhile, Germany and China have unveiled spending plans to revive their economy.
Every month, Mint’s Plain Facts section brings out an update on key global data to thread together the biggest developments in the world that are worth paying attention to. The accompanying analysis and charts explain how each story is creating ripples on the global stage, where it is headed in the coming weeks, and whether it can impact India.
Tariff tango
With the 2 April deadline for imposing reciprocal tariffs nearing, US President Donald Trump may be softening his stance. He signalled that there may be “flexibility" in imposing blanket tariffs on trading partners.
The US president has threatened to impose reciprocal tariffs on nations that have high tariffs on US goods as well as those using non-tariff barriers like value-added taxes (VAT). A report by Fitch Ratings shows that the difference in tariff rates between emerging markets, including India, and the US is wide.
While the market responded positively to a possible softer stance by Trump, analysts expect this could lead to further uncertainty. The signals of flexibility have come against the backdrop of what is being described as "Trumpcession", which is the possibility of a recession in the US (20% change by Goldman Sachs and 40% by JP Morgan) due to a weak job market, declining consumer confidence, and slowing investments.
Global gloom
With Trump’s tariff causing uncertainty and fears across the world, the global economy is expected to slow down this year and the next. Global growth is expected to decelerate from 3.2% in 2024 to 3.1% in 2025, and then further to 3.0% in 2026, according to the OECD’s March 2025 economic outlook.
The slowdown is attributed to rising trade barriers, geopolitical tensions, and economic policy uncertainty. The US economy is projected to cool from 2.8% in 2024 to 2.2% in 2025 to just 1.6% in 2026.
The interim report notes that if the US proceeds with tariffs on Canada and Mexico in April, Mexico could enter a deep recession in 2025 and 2026, and Canada’s GDP growth will be reduced to just 0.7% in both 2025 and 2026.
The rising trade barriers may fragment the global economy, triggering tighter monetary policies and disruptive financial market conditions, the report said.
Monetary moves
After an interest rate pause by the US and the UK, all eyes will be on monetary policy decisions by India and the European Union, which will announce their monetary policy decisions in April.
As policymakers await clarity on Donald Trump's flip-flopping US trade policies, the role of central banks in navigating through an uncertain economic landscape has become even more crucial.
India is expected to announce another policy repo rate cut to support growth, as inflation trends downward. Policymakers in the European Union may opt for a pause in rate cuts while awaiting clearer guidance on trade and fiscal policies, especially those influenced by the US. Bank of Canada governor Tiff Macklem has indicated that the regulator may provide a range of economic estimates, reflecting the uncertainty surrounding US trade policies. Indonesia's central bank kept the interest rates on hold this month but kept the possibility of cuts open in the upcoming meetings.
Breaking barriers
Germany has unveiled a €500 billion spending plan aimed at boosting defence and infrastructure over the next 12 years. The plan includes loosening Germany's strict “debt brake" rules, which limit the structural deficit to 0.35% of GDP. Under the new proposal, defence spending above 1% of GDP will be exempt from these rules, allowing for greater military investment.
Additionally, a special infrastructure fund will be created to finance long-term projects, modernizing the country’s ageing infrastructure. This marks a departure from Germany’s long-standing fiscal conservatism.
While the immediate impact on economic growth is expected to be minimal, the plan is projected to add up to 1 percentage point to GDP growth annually by 2026-2027. In response to the news, the 10-year bond yield jumped sharply after a massive sell-off in anticipation of more bond sales to fund the increased spending. This could result in a spillover effect in the rest of Europe, with investors expecting higher returns on investment.
Revival rush
China has unveiled a “special action plan" to boost consumption and revive its economy. The plan comes as China faced weak consumer demand in recent years, driven by covid disruptions and a prolonged property slump, which dampened household spending and fueled deflationary pressures. China faced deflation towards the end of 2023 and the beginning of 2024. Deflation made a comeback in February this year, leading to worries.
The “special action plan" aims to boost consumption in the economy by introducing measures to increase urban and rural incomes, establish a childcare subsidy system, and support housing reforms to raise farmers' incomes. The move comes after China’s Premier Li Qiang's recent report to the National People's Congress emphasized the need to cushion the country against the impact of weak external demand. Apart from the domestic factors, the imposition of a 10% tariff by the US and threats of additional tariffs is likely to keep China on its toes.
