Business
India’s Modi looks to new economic playbook as risks mount
After world-beating economic growth last year, India’s policymakers are scrambling to head off a sharp slowdown as worsening global conditions and domestic confidence wipe out a recent stock market rally.
On Tuesday, Asia’s third-largest economy forecast annual growth of 6.4% in the fiscal year ending in March, the slowest in four years and below the government’s initial projections, weighed by weaker investment and manufacturing.
The downgrade follows disappointing economic indicators and a slowdown in corporate earnings in the second half of 2024, which have forced investors to rethink the country’s earlier outperformance and cast doubts over Prime Minister Narendra Modi’s ambitious economic targets.
The fresh worries are heightening calls for authorities to lift sentiment by loosening monetary settings and slowing the pace of fiscal tightening, especially as Donald Trump’s looming second presidency throws more uncertainty over the global trade outlook.
“You have to revive the animal spirit, and you also have to ensure that consumption picks up. It’s not that easy,” Madhavi Arora, chief economist at Emkay Global Financial Services, said, adding India could expand its fiscal balance sheet or cut interest rates.
Such calls come amid a flurry of meetings by Indian policymakers with businesses growing increasingly worried about faltering demand.
Finance minister Nirmala Sitharaman held a series of meetings in December with industry and economists, customary ahead of India’s annual budget, which is due Feb. 1.
Some of the measures proposed in those talks to boost growth include putting more money into the hands of consumers and cutting taxes and tariffs, according to demands by trade and industry associations.
GROWING CONCERNS
The worries about India’s economy knocked 12% off the benchmark Nifty 50 index from late September to November. It clawed back those losses to end 2024 up 8.7%, a decent gain but well off the previous year’s 20% surge.
As confidence wanes, the political urge to stimulate growth appears to be broadening.
India’s monthly economic report published last month said the central bank’s tight monetary policy was partly responsible for the hit to demand.
Modi has made some high profile changes recently that are expected to lift economic growth as a priority over price stability.
In a surprise move in December, Modi appointed Sanjay Malhotra as the new central governor, replacing Shaktikanta Das, a trusted bureaucrat who was widely expected to get another one to two-year term as bank chief after having completed six years at the bank.
The appointment of Malhotra, who recently said the central bank will strive to support a higher growth path for the Indian economy, came immediately after the September quarter growth slowed much more than expected to 5.4%.
During the pandemic, Modi sought to keep the economy growing by raising infrastructure spending and limiting wasteful expenditure to keep government finances in good shape.
That lifted headline GDP growth but has not supported wages or helped consumption sustain an annual expansion of more than 7% over the past three years.
While India’s economy may still outperform globally, the question is whether it can maintain 6.5%-7.5% growth or slow to 5%-6%, said Sanjay Kathuria, visiting senior fellow at Centre for Social and Economic Progress.
Arora said the country currently is in a “bit of a limbo” where individuals are not spending. She expects this to continue if employment does not improve and wage growth remains weak.
Reuters reported last month the government plans to cut taxes for some individuals and is preparing to offer tariff cuts on some farm and other goods mainly imported from the US, to clinch a deal with Trump.
Economists say the government will have to slow some of its fiscal tightening to support growth with the success of such measures dependent on the extent of the cuts.
With regards to trade, analysts say India needs a credible plan to fight Trump’s tariff wars.
If China remains the main target of Trump’s tariffs, that could present an opportunity for India to boost its trade profile, although it would also need to let the rupee fall further to make its exports more competitive, economists said.
India needs to “seriously implement tariff rationalisation to help embed itself more deeply into global value chains,” Kathuria, also an Adjunct Professor at Georgetown University, said.
This could include tariff cuts aimed at pre-emptively heading off punitive levies from a Trump White House.
“India should announce some proactive measures for US suo-moto to bring concessions for the US rather than waiting for the new administration to announce their steps,” said Sachin Chaturvedi, head of the New Delhi-based Research and Information System for Developing Countries.
Business
Dollar treads water as Trump tariff clarity, central banks awaited
The dollar steadied against major peers on Thursday, continuing its near paralysis of the past two days before more concrete announcements on tariffs from U.S. President Donald Trump.
A spate of central bank policy decisions are also due over the next week, with the Bank of Japan widely expected to raise interest rates at the end of a two-day meeting on Friday.
Rate decisions from the U.S. Federal Reserve and European Central Bank are scheduled for Wednesday and Thursday of next week, respectively.
The dollar index – which measures the currency versus six top rivals, including the euro and yen – was flat at 108.25, following two days of gains of around 0.1%.
On Monday, it tumbled 1.2%, its steepest one-day slide since November 2023, as Trump’s first day in office brought a barrage of executive orders, but none on tariffs.
So far this week, Trump has mooted levies of around 25% on Canada and Mexico and 10% on China from Feb. 1. He also promised duties on European imports, without giving details.
“President Trump has so far taken a less hostile-than-expected approach to China,” amid overall “softer-than-expected policies and tone on tariffs”, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
At the same time, “we are cautious (that) risk sentiment remains fragile and can quickly turn sour if President Trump strikes a more aggressive tone.”
The Chinese yuan was little changed at 7.2812 per dollar in offshore trading .
Wall Street’s main indexes rose Wednesday, with the S&P 500 hitting an intraday record high thanks to strong Netflix earnings and a rally in tech shares.
Japan’s yen edged up about 0.1% to 156.40 with markets pricing 95% odds of a quarter-point hike on Friday.
The euro was flat at $1.0411. The ECB is widely expected to cut rates by a quarter point next week.
The Canadian dollar held steady at C$1.4386 against the greenback. The Bank of Canada is seen as likely to reduce rates by a quarter point next Wednesday.
The Mexican peso was little changed at 20.47 versus the U.S. currency.
Business
Oil prices extend losses amid uncertainty over tariff impact
Oil prices dipped in early trade on Thursday, extending losses amid uncertainty over how proposed tariffs by U.S. President Donald Trump on several countries would impact global economic growth and energy demand.
Brent crude futures fell 23 cents, or 0.3%, to $78.79 a barrel at 0135 GMT, while U.S. West Texas Intermediate crude (WTI) eased 18 cents, or 0.2%, to $75.26.
In its previous session, Brent futures settled at $79.00 in a fifth straight day of losses. WTI futures settled at $75.44 in a fourth consecutive day of declines.
Trump has said he would add new tariffs to his sanctions threat against Russia if the country does not make a deal to end its war in Ukraine. He added these could be applied to “other participating countries” as well.
He also vowed to hit the European Union with tariffs, impose 25% tariffs against Canada and Mexico, and said his administration was discussing a 10% punitive duty on China because fentanyl is being sent to the U.S. from there.
Meanwhile, estimates from an extended Reuters poll showed that on average U.S. crude oil stockpiles were expected to have fallen by 1.6 million barrels in the week to Jan. 17.
Gasoline stockpiles were estimated to have risen by 2.3 million barrels last week, and distillate inventories were likely to have gained 300,000 barrels.
The poll was conducted ahead of the American Petroleum Institute industry group’s report and another from the Energy Information Administration at 12:00 p.m. ET (1700 GMT) on Thursday.
European wind shares fell on Tuesday (January 21).
The reports were delayed by a day due to the Martin Luther King Jr. Day federal holiday on Monday.
Business
Pakistan, Saudi Arabia reaffirm commitment to boost economic ties
Pakistan and Saudi Arabia have reaffirmed their commitment to further strengthening the bilateral economic ties for shared prosperity.
The commitment was expressed when Finance Minister Muhammad Aurangzeb met with his Saudi counterpart Mohammad bin Abdullah Al-Jadaan on the sidelines of World Economic Forum Annual Meeting in Davos.
Muhammad Aurangzeb highlighted the key reform measures undertaken by the Government to promote economic stability and sustainable growth.
He briefed him on structural reforms, fiscal discipline and regulatory improvements that have contributed to an improved investment climate in Pakistan.
Earlier, Aurangzeb met Anna Bjerde, Managing Director of Operations at the World Bank.
They discussed cooperation between Pakistan and the World Bank, with a particular focus on Pakistan’s macroeconomic stability.
The finance minister emphasized the government’s strong partnership with the Bank and expressed hope that the World Bank would continue playing a key role in the country’s socio-economic development.
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