Trump’s election could have far-reaching effects - BNPP

Donald Trump’s election has effected a radical shift not only in US politics, but also in the US economic outlook and, therefore, in the global financial picture notes research team at BNP Paribas.

Key Quotes

“At the moment, there is a lack of certainty about the Trump administration’s policies on tax, spending, trade and geopolitics. The views below are therefore preliminary and may shift as more clarity is obtained.”

“We assume that there will be some measures that will affect trade, both within the North American Free Trade Agreement (about half of US trade) and outside it. But we expect that these will be limited and, therefore, that there will be limited retaliation. Consequently, we have made only a minimal assumption about higher prices and adverse supply implications coming from trade restrictions. Immigration policy could also have an impact on the supply side, on potential growth and on wage-setting as well as demand. We have assumed such effects will, to some extent, wash out against the positive supply-side effects of deregulation. We will revisit these assumptions as policy crystallises.”  

“The major shift to our forecasts comes from the fiscal side. Unconstrained, the full package of fiscal proposals could add about 3.5pp of GDP to the deficit, on average, over the next 10 years, assuming only a small supply response. It is clear, if President Trump gets his way, that there will be a substantial boost to demand over the next two years.”