Morgan Stanley's Chief Asia Economist Chetan Ahya believes that the implementation of tariffs by the new Trump administration will be phased and slow, however, it will have still an impact on Asian growth rate which could go down to 4.1% in 2025.
In conversation with CNBC-TV18, Ahya said the tariffs will be largely focused on China, and the weighted average tariff projected to rise from 10.5% to 25.5% by the end of the year. "This will begin to go up from second quarter of 2025, and we see another 10% weighted average increase next year, which will eventually take the tariff to 35-36% by end of 2026," Ahya said. However, he added that the impact will be much more muted than what we saw in 2018, with the assumption that there will not be universal tariff across the region or on all the countries.
Hours after his Inauguration, President Donald Trump announced that he is likely to consider a 25% on Canada and Mexico as early as February 1, in a move that could intensify trade tensions with neighbouring nations.
A wider tariff imposition by Trump 2.0 would dent the corporate confidence much more than the base case, said Morgan Stanley. Chetan Ahya underscored that the Morgan Stanley's forecast could be at risk if Trump announces across-the-board tariffs.
Ahya echoed the views of Morgan Stanley's Global Head of Fixed Income and Thematic Research, Michael Zezas, who said had in December said that the eventual policies may be different from what Trump might say. "The ultimate policies enacted to address the concerns could look quite different than what the literal interpretation of Trump's words might suggest," Michael Zezas had said.
Morgan Stanley's base case is for two rate cuts by the US Federal Reserve this year, and US inflation is expected to decline in 2025, but the tariff and immigration policies do pose a risk to this assumption.
Chetan Ahya added that going forward, he expects all Asian currencies to depreciate, with the Rupee declining less than its peers.
The global growth and corporate confidence may not be impacted significantly if President Trump's tariffs are not universal and across the region, added Ahya, implying India can still achieve 6.5% GDP growth.
"There is some downside to Indian from the external environment because there will be some tariff increase on China. But because there is no broader trade tension, that will help India from an external environment perspective," said Chetan Ahya, adding that tariff impact will be less destabilizing than in 2018.
Ahya also pointed out that India’s services export growth has bounced higher, and has been growing at 15% for the past three months, implying the external environment is 'not all that bad' for India.
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