US economy will have a significant impact on global GDP

America is the world's largest national economy and leading global trader. A growth surge in the world’s largest economy could provide a significant boost to global activity. In contrast, uncertainty about the direction of US policies could have the opposite effect.

An acceleration in US growth would have positive effects for the rest of the world if not counterbalanced by increased trade barriers. However, policy uncertainty could hamper global growth, and could have particularly bad effects on investment growth in emerging and developing economies.

Experts predicts, a slowdown in the US economy could have a significant impact on global GDP. The US accounts for about 25% of global GDP. A slowdown in the US economy would lead to a decrease in demand for goods and services from other countries, which would hurt their economies.

At the same time, China will grow slowly. It is a tightly controlled model, everything is state owned, state controlled and further intensified. Instead of people's expectation of growing at 5 per cent, China will grow at 2 per cent. But it is not going to collapse.

"If next year they keep it at 8-9 per cent, there is no further stimulus. There are many fault lines in the US economy, real estate, commercial real estate, a lot of loans haven't rolled over. If you take a fresh mortgage in the US today, the rate will be 7.9 per cent. The average effective rate is 3.6 per cent because everyone takes fixed rate mortgages in the US. The impact of the rate increase hasn't even shown up. When that starts happen in mid next year, that's what we need to be worried about," a top economist comments.

Our position , if India grows at 10 per cent nominal, we are going to add to 40 basis points to the global economy. That is a large part of the global GDP, but not enough to move the global GDP. But if the US slows down sharply, the whole world economy will slow down. The expert says.

If the US sees a recession. Our IT services industry and our business services exports could be hit. Services exports make up 10% of India's exports. If they fall a lot, we could lose 1% of GDP growth.

The bigger risk, he said, is dumping of products in India. If India remains the only country where demand is resilient, every manufacturer would like to sell here. This would adversely affect Indian manufacturers. The fourth problem is that a US recession would affect the yield on its government bond.

Going forward, the cost of capital would go up for the other economies. Good borrowers in India, like famed steel companies, would get dollar loans easily earlier. But such loans have not been available for the past 6-8 months. This would bring about a lot of volatility in financial markets like bond markets and equity markets," Experts warns.

S Mohini Ratna, Editor, VARINDIA