Economy

India’s economy expanded by 5.4% in its second fiscal quarter ending September.
Economists polled by Reuters had forecast growth of 6.5% for the period, while the Reserve Bank of India expected an expansion of 7%.
Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, said India’s economy will slow but not “collapse” in 2025.

Construction workers in Mumbai, India, on June 5, 2024. 
Bloomberg | Bloomberg | Getty Images

India’s economy expanded by just 5.4% in its second fiscal quarter ending September, well below estimates by economists and close to a two-year low.
The print follows 6.7% growth over the previous quarter and is the lowest reading since the last quarter of 2022. Economists polled by Reuters had forecast growth of 6.5% for the period, while the Reserve Bank of India expected an expansion of 7%.

The country’s statistics agency noted sluggish growth in manufacturing and the mining sector.
The yield on the country’s 10-year sovereign bond quickly sank to 6.74% after the release, from around 6.8%.
The weak GDP reading could potentially affect the country’s interest rate trajectory, with the RBI’s Monetary Policy Committee scheduled to meet between Dec. 6-8. Markets watchers had been expecting an eleventh consecutive pause by the RBI, with the repo rate currently at 6.5%.
Harry Chambers, an assistant economist at Capital Economics, said the Friday reading showed that weakness was “broad based.” His firm expects economic activity “to struggle over the coming quarters.”
“That bolsters the case for policy loosening, but the recent jump in inflation means the RBI won’t feel comfortable cutting interest rates for a few more months yet,” he said in research note.

Speaking to CNBC “Squawk Box Asia” before the GDP release, Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, forecast that India’s economy will slow but not “collapse” in 2025.
She said that Natixis has a 2025 growth forecast of 6.4% for India — without clarifying whether this refers to the fiscal or calendar year — but added that the print could also come in as low as 6%, which she qualified as “not a bit problem, but it’s not welcome.”
Separately, the RBI projected that GDP growth for the 2024 fiscal year ending in March 2025 will reach a higher 7.2%.
Asked how India’s economy will fare under President-elect Donald Trump’s second presidency, Herrero said the country is “not really at the center of the reshuffling of the value chain that China has been conducting.”
“If I were the Trump administration, I would start [looking at tariffs for] Vietnam. That’s a much more obvious case,” she noted.
She said that China could make products in India for Indian consumption instead of exporting products globally — and as such, New Delhi could avoid getting hit by tariffs. More

Annual euro zone inflation rose to 2.3% in November, statistics agency Eurostat said Friday.
While it takes price rises back above the European Central Bank’s 2% target, the increase was expected and primarily down to effects from the energy market.

The stalls at the 590th Dresden Striezelmarkt are brightly lit at the opening.
Sebastian Kahnert | Picture Alliance | Getty Images

Annual euro zone inflation rose to 2.3% in November, statistics agency Eurostat said Friday, climbing back above the European Central Bank’s 2% target.
Economists polled by Reuters had expected the 2.3% annual rate for the month, up from 2% in October.

Price rises in the bloc have ticked higher for two straight months after dropping to 1.7% in September, as was expected due to the fading deflationary pull from energy prices.
Core inflation, excluding volatile energy, food, alcohol and tobacco prices, held at 2.7% for a third straight month in November.
The core rate is being propped up by the stickiness of services inflation, which only slid slightly to 3.9% in November from 4% during the previous month.

Markets have fully priced in a 25-basis-point interest rate cut from the ECB in December, which would mark the institution’s fourth trim of the year.
Speculation that the central bank could be pushed into a larger 50-basis-point cut has faded since last month, after slight improvements in the weak euro area growth outlook and a rebound in inflation.

Inflation came in slightly higher than forecast in October, while ECB policymakers, including executive board member Isabel Schnabel, have stressed the need for caution in monetary easing.
The ECB’s decision will largely be informed by the latest staff macroeconomic projections it will receive just ahead of its upcoming Dec. 12 meeting. The central bank will also be weighing the potential global impact of the recent election of Donald Trump as U.S. president, including whether he will follow through on his threats of universal trade tariffs and how such a step would impact European Union exports.

The euro was little-changed against the U.S. dollar and British pound following the data release.
Kyle Chapman, FX market analyst at Ballinger Group, said in an emailed note that the uptick in headline inflation was solely down to year-on-year energy price volatility, and that the ECB would look favorably on a 0.9 percentage point fall in month-on-month services inflation.  
“With the growth picture looking soft, there is still no doubt that inflation will fall to 2% on a sustainable basis next year,” Chapman said, adding that the market nonetheless appeared to have settled on a 25-basis-point move in December.
“The economy is not falling off a cliff just yet and there is uncertainty about where the neutral rate is, so there is no pressing need to start frontloading cuts,” he noted.
Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said the inflation figures, combined with recent data showing record low unemployment and higher negotiated wage growth in the third quarter, will prevent a 50-basis-point cut.
The final monetary policy decision will nevertheless remain a “close call,” with the more dovish members of the ECB pushing hard for a 50-basis-point trim, Debono said. If the central bank does stick with a 25-basis-point move, it will likely follow this step with cuts of the same size at both of its following meetings in January and March, she added. More

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Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldNever read or post. That is my rule on social media. Always use primary sources. That is my rule when it comes to data and research for this column. When they clash — which frustratingly they have twice in as many months — the second rule trumps the first.  October saw me download TikTok to confirm whether indeed a song had gone viral about “looking for a man in finance”. What a cesspit of nonsense that app is. I pity the Chinese spies having to wade through it all day.  This week I’ve been forced to join Truth Social, as Donald Trump is using it to announce major policy initiatives. I wanted to see exactly what he wrote about tariffs on Monday that rattled markets so.Have you ever read a full post by the president-elect? What I don’t understand is his random use of capital letters. For example, the words Crime, Drugs, Invasion and Caravan appear mid-sentence. As do Illegal Aliens and Open Border.But “simmering problem” isn’t capitalised, nor is “pay a very big price”. Then I wondered if he was sending a secret message in caps. If you can decipher what MCCDCMOBEOMCTALLUSOBTDFAICMC means, do email our news desk.What was clear, though, is tariffs were branded as threats rather than instruments of economic policy. In this case against Canada and Mexico for supposedly failing to stop humans and Fentanyl from “pouring” into “our Country!”In a separate post Trump also tied an additional 10 per cent tariff on China specifically to drugs (small “d” this time). Hence it was surprising to me that currencies and stock prices took the news so seriously.There was an immediate drop of 1 per cent in the Canadian dollar and Mexican peso versus the greenback. Asian equity markets were also weaker as were European bourses. Carmakers in particular needed their airbags.By the end of the week, however, investors had moved on. Indeed, as I write the S&P 500 has racked up seven consecutive days of gains. Even the Nasdaq Golden Dragon China Index — heavy in tariff-vulnerable US companies with big China operations — is higher than it was last Friday.But the reason shares don’t care about Trump waving his tariff club around like my two-year-old son has nothing to do with whether or not he is serious. Nor Christine Lagarde’s advice on Thursday for Europe “not to retaliate but negotiate” on trade with the US.It is because of the fundamental nature of equities and how the buyers of them are compensated for uncertainty. This so-called risk premium is why stocks outperform most other asset classes. The riskier the bet, the higher the return.They are two sides of the same coin so cannot be separated. Trying to do so is silly. Proponents of environmental, social and governance-based investing, for example, keep failing to understand this.They argue on the one hand that picking stocks based on superior ESG scores makes sense because well-run companies are less risky. But they also claim these same companies should outperform over time.Er, no. If they are less volatile their returns will be lower. The premium investors will demand to own them falls. I have written about the flip side to this before in relation to high-emitting stocks. They beat the index precisely because of transition risk.The same is true with tariffs. If Trump and his latest nominees — Jamieson Greer for trade representative and Kevin Hassett for head of the National Economic Council — do ignite a trade war, equity risk premia rise and so too returns.You don’t need to be an academic to see that tariffs don’t bother equity markets. Pull up any long-run chart you like. Likewise, China’s stock market woes over the past few years have nothing to do with trade.But if, like me, research papers make you tingle in a nice way, you could do worse than reading one from three years ago in the Journal of International Money and Finance by Marcelo Bianconi, Federico Esposito, and Marco Sammon.In it they show that as well as affecting economic variables such as employment, trade and investment, uncertainty around tariffs also influences asset prices. Positively. Looking at the years between 1991 and 2001, as the US congress to and froed on revoking China’s preferential tariff treatment, they found investors demanded an extra 3.6 to 6.2 per cent return as compensation when uncertainty increased.Controlling for other factors, firms more exposed to possible tariffs experienced significantly higher stock returns than those less exposed, as defined by how global their businesses were as well as reliance on inputs from China specifically.Any risk premium hypothesis also requires other explanations for outperformance to be discounted. The paper looked at the three most obvious ones: that changes in expected profitability and cashflows drove the differences in returns; that investors over- or -underestimated the effect of tariff uncertainty on stock prices; that trade worries were considered positive for some US firms as they discouraged Chinese imports.None of these alternative explanations were supported by the data. Likewise, no premium was found when exactly the same analysis was run during years when trade regimes were stable.Therefore the result is genuine. And it would have made good money by trading a portfolio made up of long positions in companies exposed to trade uncertainty, while shorting those which aren’t. A similar approach based on ESG scores would probably work too — but try pitching that to Birkenstock-wearing Dutch trustees.The point for newbie equity investors is that risk — from tariffs, wars, technology or otherwise — is not to be feared. If you can hack the volatility, you will be paid for taking it.The author is a former portfolio manager. Email: stuart.kirk@ft.com; Twitter: @stuartkirk__ More