'Trade impact of US tariffs likely soon': OECD's Alvaro Santos Pereira

Time of India

2 days ago

The Russia-Ukraine conflict escalation poses a significant threat to the global economy, potentially impacting energy prices and overall growth. Trade policy uncertainties, particularly US tariffs, are already affecting consumer and business confidence, leading to downgraded growth forecasts and increased inflation risks. Despite global headwinds, India remains a growth champion due to strong investment, consumption, and continued reform momentum.
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Any further escalation in the Russia-Ukraine conflict will have a significant downward impact on the global economy, said Alvaro Santos Pereira, chief economist at the Organisation for Economic Cooperation and Development. He told ET's Deepshikha Sikarwar in an interview that India continues to be the champion of growth and the reason it continues to show bright economic performance is the constant emphasis on reforms.There has been a significant change in trade policy, especially in the US in the past few months. The average effective tariff of the US has risen from 2% to about 15.5%. This would be the highest average effective tariff in US since 1936. If you consider the ones announced on April 9, then the US will have the highest-ever effective tariff rate since 1890. Uncertainties around it are having an impact in many countries in terms of consumer confidence and business confidence. And, so the activity indicators and manufacturing have also been deeply affected and are declining. As a consequence, this would have an impact on consumption and on investment.On the trade side, we have not seen the big changes yet, because in the first quarter of this year there's been significant front loading of exports from a lot of countries and firms to the US. The trade impact will likely come soon. We've downgraded almost every country in terms of growth and we are also upgrading inflation risks.Any escalation of conflict clearly will have an impact. We've been seeing this for a while, both in Europe and the Middle East. Both these conflicts led to lower growth prospects for the world economy. The Ukraine-Russia conflict has had an impact on energy as well, and there is a likelihood energy prices would be affected. Conflict will have a significant downward impact on the economy, so that's why we hope there will be a resolution.There's been an impact on the financial markets. In fact, volatility has been dramatically high in the last couple of months or so. There have been a few corrections and now the markets seem to be recovering. But I think if there is further escalation on tariff front, and if there are further relational trade barriers, I would not be surprised that markets will react. Emerging market economies besides financial markets are also significantly affected by interest rate differentials between their own and the US.India continues to be the champion of growth among the G20 and the world economy because of very strong investment and consumption, which is strengthening because of the rising real incomes and lowered income taxes. We expect that heightened trade conflict will have an impact on export growth, mostly because of lower global demand.The reason India continues to have bright economic performance is continuous emphasis on reforms and the reforms momentum over the last 10 years. What is impressive is that after the first wave of reforms, such as the GST, competitive federalism, and others, the reform momentum has continued. Strong investment witnessed in India is a reflection of how these reforms are paying off.Not in the medium term, but yes, in the short term. In the case of US, we are not forecasting right now. Because of tariffs we believe that inflation will peak around 4% in the US and, as a consequence, we believe there won't be changes in policy rates this year.For other countries, it really depends on their circumstances. In India, there's still some room to lower rates, but other countries like Brazil, it is just the opposite. So, it would really depend on the specific circumstance of a country. But we know that tariffs and all these trade barriers have increased inflationary pressures, and that obviously makes the role of monetary policy more difficult.