Global uncertainty remains high as USA announced tariffs on all its trading partners on April 2nd. Subsequently, while US has provided a 90-day pause on tariffs on all countries (except its largest trading partner China), uncertainty remains high on future direction. Higher tariffs are expected to be disruptive for the global trade order & growth. On the inflation front, while USA may see an inch up, other countries will see a deflationary impact with growth slowdown and correction in commodity prices. Amidst the global turmoil, Indian economy remains relatively more resilient, supported by a domestic focused economy, improving government spending, low inflation and higher banking system liquidity.
US GDP posted a surprise de-growth of 0.3% q-o-q during January – March 2025, on account of frontloading of imports before the trade tariffs kicked in. Excluding the imports impact, the US economy remained resilient with domestic final sales being strong at 2.3% and jobs market remaining strong. US labor market remained tight as reflected in US’s non-farm payrolls coming in higher than expected at 177k vs median expectations of 138k. The unemployment rate remained steady at 4.2%, while the average hourly earnings increased by 0.2% m-o-m (vis-à-vis 0.3% in the previous month). US’s manufacturing PMIs remained steady at 50.2 in April and has remained in expansionary zone for the 4th consecutive
month. However, the services PMI declined to 51.4 in April (vs 54.4 in the previous month); while remaining in expansionary zone every month for the past year. US’s retail sales inched up to 4.9% in March (vs 3.9% in the previous month). However, US consumer sentiment index amidst tariff led overhang, has come down sharply to 52.2 in April vs 57.0 in March and an average of 64.2 in the quarter Jan – March 2025. US CPI also came in marginally lower than expected at 2.4% vs 2.5% expectation, reflecting growth moderation. Core inflation also moderated, though still elevated at 2.8% vs 3.0% expected.
India’s CPI for March softened more than expected to 3.34% vs 3.61% in the previous month, largely led by food inflation moderating to 2.8% y-o-y vs 3.8% in previous month. Sequentially also, food inflation declined by 0.7% m-o-m, marking the 5th consecutive month of decline in food prices, led by sharp correction in vegetable prices. However, Core inflation inched up to 4.2% from 4.08% in previous month, largely driven by increase in gold prices. With the expectations of healthy Kharif crop and normal monsoon, CPI is expected to remain below RBI’s comfort level of 4%. Core inflation may still remain marginally above 4% with the higher gold prices and base effect. Global uncertainty around tariffs and resultant impact on growth could lead to faster moderation in inflation.
Manufacturing Purchasing Managers' Index (PMI) for April inched up to 9-month high of 58.2 vs 58.1 in the previous month driven by new business growth, supported by strong domestic and international demand. Services PMI also edged up to 58.7 in April vs 58.5 in the previous month, driven by an increase in the new business index. The new export orders increased to a nine-month high, with the firms reporting improved sales across the regions. The index of eight core industries increased by 3.8% YoY in March vs 3.4% in previous month. Six of the eight core industries reported a rise in production, whereas natural gas & crude oil registered a decline in output. Cumulative output of eight core industries increased by 4.4% for period April 2024 -March 2025, as compared to 7.6% growth recorded in 2023-24.
India’s trade deficit surprised on the upside in March at USD 21.5bn vs USD 14.1bn deficit in February, largely on the back of USD 7.1 bn rise in oil imports despite decline in global crude prices, and USD 2.1 bn increase in gold imports. Exports grew by 0.7%, with non-oil exports growing by 2.2%, offset by 9.4% decline in oil exports. Imports increased by 11.4% vs a decrease of 16.3% in previous month, driven by growth across oil (16.3%), gold (192%) as well as non-oil non-gold (2.2%) segments. Net services surplus inched up to USD 17.9 bn vs USD 17.1 bn in previous month. FX reserves at the week ending April 25 were USD 688 bn, up from USD 665 bn from the end of previous month.
Overall domestic demand and activity levels show moderation. Consumption remains weak, led by slowdown in urban consumption even though rural demand is improving. Slowdown in bank lending is further impacting consumption, though it has shown some improvement lately. Investment cycle remains firm supported by government capex. With decline in food prices, overall inflation remains well within RBI’s comfort zone and will help consumption. Global volatility is expected to remain high and growth is expected to soften amidst US’s tariff policies.