“We are looking at about 1.1% gross domestic product (GDP) growth by the end of the year, down from 2.5% last year,” Pandey said, highlighting that this is a material slowdown, even if not a full-blown recession.
The reason for this is a combination of factors. Higher tariffs set to kick in, elevated interest rates, and pressure on domestic demand are all weighing on the economy. While consumers haven’t fully felt the pinch yet because companies stocked up inventories before tariffs hit, “once that stock runs out, it will be difficult not to pass on costs to consumers,” he said. This will squeeze purchasing power and weigh on growth further.
At the same time, core inflation is expected to rise in the second half to 3.0-3.5%. Despite this, the US Federal Reserve is likely to cut interest rates by 50 basis points before the end of the year, followed by another 75 basis points next year.
“The Fed will probably look through this inflation uptick as a one-time event,” Pandey said, adding that the central bank might prioritise the weakening labour market over temporary price pressures.
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Although a recession isn’t S&P’s base case, the risk has increased to about 30 to 35%, compared to the normal range of 13 to 15%.
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For the entire interview, watch the accompanying video
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