Ashraf Engineer
April 19, 2025
EPISODE TRANSCRIPT
Hello and welcome to All Indians Matter. I am Ashraf Engineer.
Donald Trump’s trade war, with tariffs as weapons of mass destruction, has been roiling stock markets across the world and disrupting global trade. The turbulence is being felt everywhere, not least of all in the US itself. The reciprocal tariffs have sparked concern about a recession in the US, followed by a global one – what would be the third in 20 years.
Wall Street, industry leaders, analysts and governments are having horror flashbacks about the COVID-19 pandemic and the flatlining of economies. A recession would leave many, especially retirees and the economically underprivileged, vulnerable to financial disaster.
I want to focus on the impact of a US recession in this episode because many are sounding alarm bells over it. To be clear, the US isn’t in one yet but economists at Goldman Sachs have raised their assessment of the odds of a US recession to 45% from 35% earlier. JPMorgan puts the odds at a much higher 60%.
US recessions tend to have a domino effect on economies across the world, including India. India has deep business, investment and remittance links to the US. A downturn in the American economy would have far-reaching consequences for us.
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So, what is a recession? One popular definition puts it as two consecutive quarters of economic contraction. Recessions may be caused by imbalances in the market, triggered by external or internal factors. The tariff war certainly counts as a factor, although I’d like to repeat that the US is not in a recession yet. Also, no two recessions are exactly the same – each brings with it its own challenges and unique characteristics.
What happens during a recession? Several things, none of them pleasant.
For one, investment declines because businesses have a negative outlook of the future. The Great Recession of 2007 to 2009, for example, was triggered by a collapse of the US mortgage market. So, builders stopped building homes, which meant they stopped purchasing equipment and material, which then had an impact on the wider economy.
As investment declines, unemployment rises. During the COVID-19 recession, unemployment in the US briefly hit almost 15% before falling as quickly. Even if a relatively small number of jobs are lost, the likelihood of further losses leads to widespread anxiety and a drop in consumer spending. Even if jobs are not lost, salaries might stagnate.
Much of this feeds off itself. So, declining investment leads to a rise in unemployment, which leads to a drop in consumer spending, which in turn shrinks businesses further.
Much of the current news is centered on stock market losses. However, it must be understood that what happens on the stock market is not the same as what happens in the wider economy. That does not mean the two are completely unconnected either. If there is a very large fall in stock prices, it means there is a fundamental reappraisal of future business profits and therefore of the wider economy.
As of today, markets are quite reasonable in expecting that higher tariffs will mean higher costs and lower profits.
In keeping with the theme of a possible US recession, analysts say America is harming itself as much or more than other economies. This is because the tariffs will cause price surges in the US too, adding an estimated 2% to the consumer price index in 2025. Of course, the countries affected are imposing retaliatory tariffs, which affect US product and service prices badly.
A recession or slowing growth would cause Americans to cut back on spending, which would lower demand for foreign goods. Other problems would include uncertainty and disruption of supply chains. The cost of doing business with the US would increase drastically.
The makers of these foreign goods would compensate by holding back investment, as I mentioned earlier, and laying off people. For example, Deutsche Bank economists expect unemployment to rise in the European Union and the UK over the next 12 to 18 months.
So, how would a US recession impact India?
First of all, stock market turbulence – as we’ve witnessed. A recession in the US would trigger a global selloff, leading to a decline in Indian stock markets too. Foreign institutional investors, or FIIs, would withdraw. Stocks of industries like IT and pharmaceuticals would fall. Startups dependent on US venture capital would struggle to get funding. Rising sectors like education technology and fintech would be hit.
There would be a slowdown in IT and services. An estimated 60% of the Indian IT sector’s revenue comes from the US. If American companies cut IT spending, Indian giants like TCS, Infosys and Wipro would witness shrinking growth and be forced to resort to layoffs.
Unemployment would also rise in historically vulnerable industries such as construction, manufacturing, retail and hospitality.
There would be export disruptions. Among the export-driven industries that would be affected are textiles, automobiles, and gems and jewellery. This would directly impact Indian MSMEs. Also, lower exports would mean a GDP slowdown.
A US recession would also lead to investors seeking safer currencies like the dollar, which would weaken the already weak rupee. This means our imports, especially those of oil, would get more expensive, thus fuelling inflation. India is already facing a cost of living crisis and this would exacerbate it.
As tax revenues decline, it would strain government finances. And it would mean government finances being diverted to safety-net programmes like food assistance. This would expand the fiscal deficit.
Although I’ve said it before, I do want to keep repeating that the US is not experiencing a recession yet. This episode is about what happens if there is one.
So, how can you, as an individual, prepare?
First of all, have sufficient reserves. Layoffs often occur during a recession, so it’s best to be ready. Don’t spend on indulgences and shore up the emergency budget for occurrences such as a health setback. Generally, experts advise six months of living expenses as a fallback. When you’re calculating the expenses, make sure to include utilities, food, insurance and a cushion for irregular but necessary purchases, such as clothes or stationery.
Strip away expenses like travel or recurring subscriptions that you don’t or rarely use.
You could grow the fallback fund by investing it in low-risk mutual funds or a high-yield savings account. That way, your money grows at least in line with inflation. Live within your means during the good times and you are less likely to struggle during the bad times.
If you are confident of your fallback fund, a downturn can be a good time to make large-ticket purchases such as a car because typically their prices fall then. But make sure you’ve protected yourself first financially.
If you can, keep contributing to your retirement fund, but reduce the risk in the portfolio.
Make sure you pay down credit card debt. This is very high-interest debt and causes much financial strain. It would be a good idea to not have any in the first place.
If possible, have an additional source of income. A side gig can act as a buffer. This is true even if you have a great and secure job. Diversifying income streams is as important as diversifying your investments. That way, if you lose one stream of income, you still have the other one.
Most important of all, get professional investment help to grow your money and to plan for downturns.
A US recession, if at all it happens, will leave no one untouched. India is feeling the effects of the trade war already and unless there is a let up in it, the stresses will compound. A recession in the US does not mean automatically a recession in India but it does mean a significant impact on the economy.
An interconnected world has tremendous upsides but also a few downsides. The better prepared we are as a country and as individuals, the better will be our capacity to manage it.
Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.
