A new report by the State Bank of India (SBI) has raised red flags about the sustainability of the recent boom in the US economy, suggesting that the surge may have been an anomaly fuelled by post-pandemic policy measures rather than structural strength.
Titled ‘US Economy Heading towards (Un)exceptionalism?’, the report points to declining growth potential, weakening productivity and dwindling investments as indicators that American economic exceptionalism might be nearing its end.
The report attributes the post-Covid economic surge in the US to policy extravagance rather than robust fundamentals. Long-term data highlights a consistent decline in GDP growth, shrinking exports and weakening consumption patterns. According to the SBI, the recent spike in economic activity may have been a temporary outlier rather than a reflection of enduring strength.
Crucially, key indicators such as total factor productivity (TFP) growth and value addition are showing a downward trend. Adding to the woes, net savings to GDP in the US have plunged to their lowest levels since 2011, while the debt-to-GDP ratio continues to escalate.
The report also highlights the unintended consequences of high wages, which, while beneficial for workers, are acting as a deterrent to new investments. Employer costs averaged USD 31.47 per hour in December 2024, making sectors like manufacturing less attractive for long-term capital infusion.
The research emphasises the need for structural adjustments to revitalise private-sector participation and productivity, warning that these measures would involve short-term costs and uncertainties even if undertaken.
Compounding the challenges, former US president Donald Trump’s decision to impose a 25 per cent tariff on steel and aluminium imports from 13 March 2025, could further hinder economic growth.
While the tariffs pose a risk to the US, SBI’s analysis suggests that India could benefit by capitalising on shifting trade flows, as it currently runs a trade deficit with the US in these commodities.
US financial markets, which saw record gains post-pandemic, appear to have lost momentum. The S&P 500’s market capitalisation, which touched $52.9 trillion in February 2025, has started to retract as investor confidence wanes amid persistent volatility. Even prominent tech stocks, collectively known as the ‘Magnificent Seven’, are showing signs of weakness under economic and geopolitical pressures.
Recession fears have intensified with the Atlanta Fed’s GDP Now model lowering its Q1 2025 growth estimate to -2.4 per cent from an earlier projection of +2.9 per cent. The report underscores that GDP growth has declined from 3.2 per cent in Q4 2023 to 2.5 per cent in Q4 2024, further validating concerns of an economic slowdown.
The report sees a silver lining for India, emphasising that as the US and other developed economies face economic headwinds, India’s diversified export base and robust domestic consumption could attract global capital and market share.
The country has signed 13 free trade agreements (FTAs) over the past five years, including with major partners like the UAE and Australia, and is actively negotiating new deals with the UK, Canada and the EU.
