The Hidden Truth Behind India's Rising Current Account Deficit: Good Or Bad News? | ET Now

本站添加: 2026-05-31

[00:00:00]Let's uh you know go deep into what's happening from an economy point of view especially the US uh and the global economics. Uh we have CL Clauddio ION head of global economics research at Bank of America uh global. Uh Clauddio thank you very much for joining us. uh know let's start off with how do you look at this entire West Asia crisis impacting economies and uh you know who do you think or which economies do you think will be the worst impacted >> in a nutshell we see this uh this word as a stagflationary shock for the world economy that means uh somewhat lower growth and higher inflation it's it's basically a supply shock at this point.

[00:00:48]Um and the impact, the permanent impact will depend on how long the war is for how long um the the supply disruptions um last in particular obviously the straight of formos and that will determine the persistence of the shock.

[00:01:09]Um we uh are working under the assumption that there will be um some type of resolution at least in the reopening of the straight of formos um in the near future. Um there is a lot of uncertainty obviously um we we heard uh President Trump saying that the deal is imminent but uh we've we've we've heard that many times already since the war started. So there is a lot of uncertainty. Um but in a nutshell what we have done is to reduce uh since the war started uh global growth uh a few ten um to capture the the persistent uh part of the shock uh and the damage that is already done to the global economy even if the war ends tomorrow. Uh so we had a 3.5% global growth forecast before the war.

[00:02:07]Now we have 3.1%.

[00:02:10]Um for for the US uh we now expect 2.3% growth. It's still a pretty good number uh for the US.

[00:02:19]India in particular uh we reduce growth to 6 and a half% um about 50 basis points versus uh the pre-war level and and obviously we expect some temporary increase in inflation.

[00:02:33]Um in terms of the countries that will be more impacted obviously um it's going to be um oil importers uh Europe will suffer uh more than the US. India being an oil importer obviously it's a negative shock. Um China and Japan which are natural oil importers uh so far has not been impacted that much because they have uh huge inventories of oil. Um so in order for those economies to be impacted more heavily you need more persistence in in the shock. Um in terms of central banks um we we expect the Fed not to uh change interest rates in the near future. Uh we expect some hikes from from the ECB eventually. We expect some hikes uh by the RBI at some point towards the end of the year, beginning of of next year.

[00:03:33]But the the persistence of the shock will determine whether central banks will react or not and and whether inflation expectations uh move accordingly. Otherwise, uh it's supply shock that you can look through uh as long as inflation expectations remain anchored.

[00:03:51]And Clauddio what what's your sense with regard to second order impact of the crude shock which is that you know first order being that being what you've you know kind of spelled out very beautifully. What's the second order impact uh both across economies as well as companies earnings and the like what's the assessment there?

[00:04:11]Again, I I think um sorry to be repetitive, but I think it's it's again a matter of whether this is a temporary shock, relatively short leave or permanent. Now, what is important here is that even if the war uh the war ends tomorrow, we don't expect energy prices to go back to the pre-war level. Uh so there will be a permanent level of disruption. It's going to take a lot of time to normalize not only distribution but also production in the Middle East.

[00:04:46]Uh obviously other countries step up in production in particular the US. Um but replenishing inventories in in the in China and uh and in Japan is going to take time. So uh you shouldn't expect oil going back to uh low 70s or or or high 60s. Uh it's probably more a story of oil around the low 90s mid 90s uh something like that.

[00:05:16]>> Clauddio do you think that it will take a longer time to go for oil to pre uh pre uh conflict levels maybe early next year? It can can it extend to early next year and is that the timeline do do you have or is it going to be much longer?

[00:05:36]It could it could it could last longer.

[00:05:38]Uh um it depends again it depends on the length of the war. Um you you and I could have agreed a month ago that the war was going to end in in a week or so. Uh a month later we're still wondering whether this can happen.

[00:05:55]Uh so if the war extends uh let's say throughout the summer uh first of all the dynamics of oil prices will be very nonlinear because inventories will um will get exhausted and you need to replenish them and and it feels like the market is uh too much in the thinking that this war is going to be a short one and and therefore inventories are um deep enough to deal with that. um if the war extends throughout the summer um the pressure will be much higher and it doesn't look like that's a story that is priced in at this point and another impact claudia would be with regard to inflation because many of the central banks will now be watching more closely with regard to the inflation print uh rather than growth frankly even in the US uh what's what's your outlook uh you expect inflation to be sticky uh does the focus shift back to inflation for many of the central banks including the Fed?

[00:07:02]>> Uh yes. So we we think uh inflation is going to uh to be somewhat sticky but we need to differentiate the inflation dynamics that you had before the war and the the extra kick in inflation because of the war. Um obviously everything that is directly related to energy prices uh you're going to have an an impact. Uh but if you exclude the more volatile items and you focus on on core inflation obviously the impact is is way more more measured. The US economy in particular is um much less sensitive to oil shocks uh than in the 70s or the 80s. Um and uh both on on the inflation side and on the growth side uh on the growth side in particular because uh it's now an air exporter of of energy. Um but what concerns me the most to me on the inflation side that inflation was persistent core inflation was persistent and close to 3% which is to me a high number before the war. So um and interestingly the Fed was pretty comfortable with that and the market was pricing in a couple of cuts for this year with that persistent inflation dynamics before the war. Um now people are thinking about hikes. Um it's probably too early. Uh I think the Fed especially with a new chairman uh will wait until having uh enough and conclusive evidence that inflation it's more persistent at a higher level than before the war. Um because as I said before if it's this if this is a a temporary shock you should loot through and not hike interest rates. uh for that reason uh as I said before I I don't think or I didn't think before the war that the economy needed cuts uh less so now now will wash uh hike interest rates um probably he will try to be hawkish on the rhetoric but um you're going to have to have very conclusive evidence for this new Fed to hike interest rates based on shock.

[00:09:30]>> Interesting. Clauddio, how do you think emerging market, central banks would be managing this crisis? Uh and do you think uh uh what would be their reaction?

[00:09:43]>> Well, again, emerging markets has to be differentiated between um energy importers and energy exporters. So for instance for Latin America this is a relatively positive term of trade shock uh because most of with the exception of Chile uh and and Peru the other countries are energy exporters um and and commodity prices in general are moving higher. So uh not only oil but also copper, gold and and this is a positive term of trade for many countries in Latin America. Uh oil import is a different story. Um China is an oil importer but India is also an oil importer and as you mentioned uh the current account deficit in some countries India is one of them is worsening and it's putting pressure on the uh on the currency the interesting thing about the the current account deficit in India is that um it's uh it's worsening uh but savings aggregate savings are uh moving higher in India um the current account deficit is higher because investment is moving uh higher even faster and uh the reason why it's putting pressure on the current account is because a big chunk of the investment that it's you should call it domestic absorption it's uh it's feeding through imports of machinery and stuff like that um in particular imports from China that is the the main trading partner now uh used to be a US but now is China so uh if that uh investment if those imports are uh going uh to uh um increase the productive capacity of the economy in India I wouldn't be so concerned about the current account deficit because it's a good current account deficit if if this is uh going uh to end up in unproductive sectors uh or even worse uh one way or another uh financing consumption And that's that's obviously a different story. Uh but the truth of the matter is that yes that plus the energy shock is putting pressure on current account deficits and putting pressure on currencies and that's why um we are now um more on the camp that central banks of those countries India one of them um might be uh not so um keen to cut interest rates and definitely more staying on hold or hiking interest rates if needed.

[00:12:21]Okay. And Clauddio, what do you think of emerging markets like India? Would would they also go for a hike with regard to interest rates and maybe much earlier than other markets? Maybe earlier than developed markets as well.

[00:12:37]>> Not necessarily. For instance, if you compare uh Europe Euro area versus India, probably the ECD will hike before RBI. Um but uh but the once again it depends on um whether this uh shock of energy prices exacerbates in the coming months because the war doesn't end or on the other hand sort of a taper because the war ends relatively soon and the market move on and focus on other stuff. uh the war is there that there is a lot of uncertainty about what should happen to energy prices and the stock market in the US is going up every single day right so there are other stories also that are moving markets the AI story in particular that um that now the markets are focusing more on that rather than on on the energy so again because the perception is that the war will end relatively soon >> all right thank you so much Clauddio we let you go on that note uh gives us some perspective as to how you're looking at uh the economy as a whole given this backdrop of West Asia but so much uncertainty