Standard Life Investments chief economist Jeremy Lawson says that while it is difficult to separate campaign rhetoric from prospective policy, “the safest bet” is that increased fiscal spending will boost the US economy.
“Taken together, a raw fiscal stimulus equivalent to more than 1 per cent of GDP in 2018 is possible, which could lift growth a touch above 3 per cent. This is almost a percentage higher than our forecast if no stimulus is implemented,” Mr Lawson said.
“In turn, stronger US growth would have knock-on benefits for import demand from the rest of the world.”
Mr Lawson said this scenario should be welcome relief to investors.
“The near-term pro-growth aspects of the policy package promised by Donald Trump have been welcomed by investors after such a disappointing recovery from the financial crisis,” he said.
“The return of Republican majorities in the House and Senate should help to reduce the political stasis in Washington, particularly regarding fiscal stimulus where the president-elect and his party have the most common ground.”
However, it won’t be all good news, with the new administration likely to bring in downside risks in the form of a strengthened US dollar, tightened monetary policy and the renegotiation, or departure from, trade deals.
“We believe the most likely scenario is that heightened rhetoric is used to secure better access to foreign markets for US companies and incentives to keep production at home. However, the views of Trump’s nominees for key trade policy roles in his administration shows that there is a significant risk that Trump means what he says,” Mr Lawson said.
“A new era of protectionism would be negative for the global economy.”