S&P Global Expects India To Outperform Asian Peers Despite Slower GDP Growth

Central banks around the world are leaning towards easier monetary policy as the global economy slows, said S&P Global Ratings Inc., less than a day after the U.S. Federal Reserve announced the first cut in interest rates in more than a decade.

“Central banks globally started the year essentially leaning higher—we were talking about a normalisation cycle—but then we hit a pause and now we are going to be leaning lower,” Paul Gruenwald, chief economist at the U.S.-based financial services company, told BloombergQuint.

While the Fed's decision to lower rates is being considered as an “insurance” cut instead of beginning of an easing cycle, the move is expected to spur central banks in Europe, China and Hong Kong to follow suit, he said.

Central banks have been monitoring trade tensions between the U.S. and others, especially China, and the impact of these tensions on global growth. Earlier this month, the International Monetary Fund warned about the brittle state of the world economy and slashed its global growth outlook to 3.2 percent from 3.5 percent for 2019-20.

Gruenwald said the countries that are more reliant on trade have been hit due to the ongoing trade war. India, on the other hand, is safer because of its domestic demand focused economy, he said.

“India is a relatively closed economy and is less reliant on manufacturing for growth which explains why it continues to perform well. It is currently on a soft path but we would expect to see India outperform in relative terms.”

Gaining from the U.S.-China trade war, however, is going to be a challenge, Gruenwald clarified. “In an abstract sense, India has an opportunity but it would require intensive investment in logistics and some liberalisation.”

If correct structural changes are made, then it could have some potential of being a bigger part of the global supply chain, in the long term, he said.

Foreign Currency Bonds

The economist said S&P Global Ratings doesn't have an official view on India's decision to borrow foreign currency bonds. But Gruenwald said he could sympathise with those who are sceptical. “Global capital markets can be a little fickle and there is a natural resistance to borrow too much globally and have the external financing be subject to the whims of the global capital markets.”

Watch the full conversation here: