"Current US economic fundamentals do not point to a recession," said Ben Powell of BlackRock Investment Institute in an interview to Moneycontrol.
In the US, "job creation has slowed slightly but the labour market remains strong in contrast to soft survey data showing declining consumer confidence. US corporate earnings remain healthy," he reasoned.
The Chief Middle East and APAC Investment Strategist at BlackRock Investment Institute believes India stands out as one of the fastest-growing major economies globally.
The International Monetary Fund (IMF) projects a 6.5 percent GDP (gross domestic product) growth for India in 2025 — well above the global and emerging market averages. Powell expects this economic outperformance to continue, driven by structural strengths, such as favourable demographics and rising productivity.
He is of the view that this broader structural story presents opportunities.
Are you concerned about global growth due to the trade war?
Our scenarios framework – mapping potential outcomes for different mixes of growth, inflation and policy responses – helps us navigate this evolving market and economic landscape. In the past few weeks, the markets have been increasingly pricing in a potential US recession. We disagree. Why? Current US economic fundamentals do not point to a recession. Job creation has slowed slightly but the labour market remains strong in contrast to soft survey data showing declining consumer confidence.
US corporate earnings remain healthy with consensus eyeing about 12% growth for S&P 500 earnings this year versus 14% last September. Tech earnings expectations have adjusted lower, but the sector still has the fastest expected growth this year and underlying fundamentals remain healthy — free cash flow is now at 30% of total sales, the highest share since 1990. On a six- to 12-month horizon, we remain overweight US equities. But uncertainty over US macro and foreign policy is unusually high. If that persists, it could drag on growth. The next few weeks will be key to see if uncertainty subsides. The White House’s full tariff plan is due in April, for example.
Do you expect India to sustain more than 6 percent growth in the coming years?
India stands out as one of the fastest-growing major economies, globally. The IMF projects a GDP growth of 6.5 percent in 2025 — well above global and emerging market averages. We expect this economic outperformance to persist, driven by structural strengths such as favourable demographics and rising productivity. This broader structural story presents opportunities, in our view.
India’s demographic edge is a cornerstone of our upbeat long-term outlook. A young and expanding workforce is set to sustain consumption growth and drive productivity gains over the coming decades. This demographic dividend, combined with the possibility of AI-driven productivity gains, could amplify India’s economic potential, in our view.
India’s structural strengths outweigh near-term softness from weak domestic sentiments and uncertainty over US trade policy, in our view. A narrow focus on cyclical trends — such as slowing growth — risks missing the bigger picture and the opportunities it create.
Signs of moderating growth and easing inflation have prompted the Reserve Bank of India (RBI) to act. The central bank recently cut its key interest rate for the first time in nearly five years, lowering the repo rate from 6.5 percent to 6.25 percent to help counter slowing growth. We expect further rate cuts over the next five years.
What more would you like to see from the government in terms of policies that can not only lift economic growth but also attract FDI on a large scale?
We see trade protectionism emerging as a key risk under the new US administration. For India, however, the impact of potential US tariffs look relatively contained — goods exports to the US make up less than 5 percent of its GDP, according to World Bank data. This suggests India is far less exposed to direct trade disruptions than economies more dependent on US demand.
That said, India could face disproportionate pressure due to the wide tariff gap between the two nations. India imposes higher tariffs on US imports than the US does on Indian goods. This imbalance has historically resulted in US businesses paying more in tariffs to India than vice versa, making India a potential target for policy retaliation.
The US and India agreed to launch bilateral trade talks for the first time. The outcome remains unclear — whether a formal treaty or a mix of tariff and regulatory agreements. Even if retaliatory tariffs were imposed, we believe the economic impact would remain limited.
Which sectors would you consider for long-term investment in India?
We advocate above-benchmark allocations to Indian equities within strategic portfolios with investment horizons of five years or more as the country’s economic transformation unfolds.
We believe structural shifts underway in India map neatly onto the five mega forces we see shaping the world now and in the future. These shifts include its demographic advantage, supercharged digitisation and resilience in navigating a fragmented geopolitical landscape.
India’s turning investment and capex cycle, along with recovering rural consumption, underpin long-term structural positives. The capex cycle is driven by strong corporate and government balance sheets and a robust pipeline of projects in utilities, renewables, manufacturing, and real estate.
Do you think the US equity markets are overvalued now?
Economies around the globe are being transformed by mega forces. These forces could continue to shift the long-term trend, making various outcomes possible. We think investors should keep the big picture in mind and can find opportunities by tapping into the waves of transformation we see ahead in the real economy. AI and the low-carbon transition require investment potentially on par with the industrial revolution.
As we rethink investing in our outlook, we believe that valuations are not that stretched, as we look beyond current valuations in this transformation. Valuations tend to matter more for returns over a long-term horizon than in the near term. Some US equity valuation measures – whether price-to-earnings ratios or equity risk premiums – look rich relative to history. But they may not tell the full story. The equity market’s changing sectoral composition reflects the transformation taking hold. So, comparing today's index to that of the past is like comparing apples to oranges.
Do you foresee the next rate cut from the US Federal Reserve only in the second half of 2025?
Inflation cooled across developed markets in 2024, but structural forces did the hard work, rather than central bank rate hikes -- notably, the post-pandemic normalisation of the goods and labour markets, and an unexpected rise in US immigration that expanded the labour force.
Last week’s US jobs report showed the pace of job creation has eased somewhat, but if immigration slows back towards historical levels – and we some evidence it is already slowing – job creation would need to slow quite a bit further to prevent inflation picking up. Indeed, wage pressures are still too high for inflation to settle back at the Fed’s 2 percent target.
We think persistent inflation pressures mean that the Fed will need to keep rates high for longer, with no more than one or two cuts this year. We see the Fed’s policy changes as a recalibration of policy back towards a neutral level, rather than a traditional ‘rate cutting cycle’ as part of a business cycle.
Do you believe the Trump administration's tariffs risk will persist for a couple of months more before easing?
The US briefly rolled out the largest tariffs in nearly a century on March 4 -- 25 percent tariffs on most Canadian and Mexican imports and an extra 10 percent on China. While most North American tariffs were later put on ice for another month, we think an average effective tariff rate of about 10 percent could be the eventual landing zone – with volatility along the way.
What matters more for near-term growth are pains due to elevated uncertainty, including a potential US government shutdown. The markets expect weaker US growth to push the Fed to cut policy rates, as in a typical business cycle. Yet, we see a tough trade-off between supporting growth and curbing sticky inflation, limiting how much the Fed can cut. That reinforces our expectation of policy rates above the pre-pandemic levels and higher bond yields.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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