April 2019: Concern over US economic recession: What does it mean for India and Latin America?

​​​​​​​Investors will get a health-check on the U.S. economy in the coming months as markets are looking increasingly recession-prone. The manufacturing index, measuring everything from production to inventory, has eased since August as tariffs on foreign goods from countries including China fanned uncertainty and weakened global demand for American products. One big risk hanging over the outlook is a trade war with China now in its eight-month.

Worries of a global recession have pulled down the prices of several global commodities. While the fall in crude oil prices is restricted due to OPEC actions, most metal prices reacted negatively. Global commodities will continue to be impacted by the slowdown in China and the US.

Impact on India and LatAm:

Investors in Brasil will be evaluating the administration’s ability to negotiate a key pension bill with Congress. Uncertainty about structural reforms has hurt Latin America’s largest economy at the beginning of the year.

In Mexico, March consumer confidence is expected to remain near all-time highs, although its impact on retail sales has been so far limited by the highest borrowing costs in a decade.

In Colombia, minutes of the central bank’s latest monetary policy meeting may shed some light on how much longer the bank will maintain its “slightly expansionary” policy stance.

Keep in mind that the US recession will not happen immediately but is expected in the next 12 months. The US Fed will take several steps to prevent a recession, which could mean more money flowing to emerging markets like India, Brazil, Mexico, and others. So, the situation is positive for developing markets in the short-term. The US recession and the measures are taken to prevent it will have a big impact on the rupee and other markets, including equity, debt, and gold. As of now, the sentiment is turning in favor of the rupee. Historically, the rupee has done well when the US Fed starts cutting rates.

FII inflows into India have slowed down during the past four years, mostly because of the strong US economy. Weaker global growth is not bad for India because Indian growth will look better. Experts say this is a good time to reduce exposure to US-focused funds and increase exposure to domestic equity funds.

Since the US economic growth has peaked, global investors will start searching for an economy that is growing fast and India and Latin America’s attraction will increase once again.