US Economic Exceptionalism in Question as Growth Declines and Debt Rises

Moneylife Digital Team 17 March 2025

Consumer Interest

The US economy, once hailed for its rapid post-COVID recovery, may now be headed towards a period of stagnation and uncertainty, according to the latest research report by the State Bank of India (SBI). The report highlights a series of troubling economic indicators, including declining gross domestic product (GDP) growth, stagnant private investment and an unprecedented rise in the debt-to-GDP ratio.

SBI Research suggests that the post-COVID economic boom in the US might have been an anomaly driven by aggressive fiscal policies rather than sustainable growth. The report indicates that long-term trends in GDP growth are on a decline, with private consumption also showing signs of losing momentum. Notably, the US economy's growth rate decelerated from 3.2% in the fourth quarter (Q4) of 2023 to 2.5% in Q4FY23-24, and the latest estimates for Q1FY24-25 project a contraction of 2.4%.

The report also underscores a worrisome trend in public debt, with the debt-to-GDP ratio on a consistent upward trajectory. Despite these concerning figures, the US dollar remains strong, though showing cyclical trends with diminishing peaks. Meanwhile, private investment has remained flat since 2020, and high wages are reportedly deterring new capital inflows.

According to SBI, financial markets are also showing signs of fatigue. After delivering remarkable returns, indices like the S&P 500 are retracing gains amid growing investor concerns over corporate earnings. Additionally, high price-to-earnings (P/E) ratios across major markets have heightened fears of an impending correction.

"Complicating the economic landscape, US president Donald Trump's 25% tariff on all steel and aluminium imports, implemented on 13 March 2025, poses a challenge to both domestic manufacturers and global trading partners. India, which holds a trade deficit of US$13mn (million) in aluminium and US$406mn in steel with the US, is exploring strategic alternatives to mitigate the impact," the report says.

The report also draws attention to a broader global economic slowdown, with the S&P Global purchasing managers' index (PMI) indicating a second consecutive month of deceleration. Rising costs and falling business optimism suggest that the international economic environment remains fragile.

Interestingly, the SBI report suggests that India may benefit amid the global uncertainty by capitalising on new trade routes and supply chains, particularly those linking Europe and the US via the Middle East. India's diversified export portfolio and robust foreign investment inflows in recent years place it in a comparatively strong position despite potential setbacks from US tariffs.

While structural adjustments in the US economy could potentially lead to long-term gains, they come with significant short-term challenges, SBI says, adding that the current economic trajectory raises questions about the long-term sustainability of US exceptionalism in the global economic order.

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