How vulnerable is India to a potential US economic slowdown?

New Delhi: A potential slowdown in the US economy, driven by rising geopolitical tensions and energy shocks, has raised concerns, though its impact on India is expected to be limited but notable, according to an SBI Research report.

The report highlighted risks of a US slowdown under current global conditions, but added that “this time may be different” from previous recession cycles, with relatively contained implications for India.

According to the report, historical patterns show that major global oil shocks have often been followed by recessions in the United States. Events such as the 1973 oil embargo, the 1979 Iran crisis, the Gulf War, and the 2008 global financial crisis were all marked by sharp spikes in crude prices ahead of economic slowdowns.

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However, the report highlights key structural differences in the current scenario. Unlike in the past, the US is now relatively energy self-sufficient and has become a net energy exporter. This means higher oil prices may not drain domestic resources as significantly, as increased spending on energy largely stays within the country. In addition, US households are currently receiving substantial tax refunds, which could support consumption and help delay or soften any potential downturn.

The report cautions that while risks remain elevated due to the ongoing West Asia crisis and supply chain disruptions, the traditional link between oil shocks and US recessions may not play out with the same intensity.

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On the impact for India, SBI Research highlighted that the country is entering the current global uncertainty from a position of relative strength. India recorded a robust GDP growth of 7.6 per cent in FY26 and is projected to grow around 6.5-6.8 per cent in FY27 despite global headwinds.

The report noted that India's macroeconomic fundamentals, including strong domestic demand, a resilient banking sector, and stable financial conditions, provide a buffer against external shocks. It also drew parallels with the Russia-Ukraine crisis period, during which India maintained high growth momentum.

However, it warned that indirect effects, such as higher crude oil prices, inflationary pressures, and disruptions in global trade, could weigh on growth. The need for policy support, particularly to manage the balance of payments and stabilise the rupee, was also emphasised.

Overall, while the risk of a US slowdown persists, the report concludes that structural changes in the global economy and India's improved resilience may limit the adverse spillovers this time. (ANI)