Trade Wars and Global Economic Uncertainty

 As we move deeper into 2025, the global economy is facing growing uncertainties that are reshaping financial markets and business dynamics worldwide. The escalating trade tensions between the US and China have significantly disrupted international trade flows, while geopolitical conflicts in regions like West Asia and Eastern Europe are adding even more complexity. At the same time, global demand has weakened, leading to softer crude oil prices, which are in turn influencing inflation trends across economies. According to the UN Trade and Development Agency, there are signs of a looming global slowdown, with projected growth falling from 2.8% in 2024 to 2.5% in 2025.





Looking back, the 2018–2019 period saw similar challenges when the US imposed tariffs, triggering ripple effects in India: the rupee weakened, inflation rose, and lenders tightened credit policies, especially in sectors sensitive to global movements. Today’s trade dynamics echo those past pressures, particularly given India’s vulnerability due to its services-driven exports and high trade deficit.

The current global uncertainties—whether stemming from geopolitical tensions, supply chain disruptions, or crude oil price volatility—pose both direct and indirect risks to credit markets, in India and globally.

On the wholesale side, rising global risk aversion could limit access to foreign capital for Indian companies, whether through Foreign Direct Investment (FDI) or External Commercial Borrowings (ECBs). Raising funds via ECBs may become more difficult or come at a higher cost. Indian sectors integrated into global supply chains, such as manufacturing and automotive industries, might encounter tighter credit conditions and higher borrowing expenses due to declining global demand, weakened exports, and more expensive raw material imports. In response, Indian banks and financial institutions may need to reassess their underwriting standards, increasing their provisioning buffers and paying closer attention to early warning signals in sectors most exposed to these global uncertainties.

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