Gauging the economic plans of U.S. presidential candidates
Both main candidates in the US presidential election have outlined their plans in numerous areas. Whoever wins, both are promising to raise government spending, especially on infrastructure. Writing in the October issue of Perspectives, Pictet Wealth Management’s chief economist Bernard Lambert outlines various scenarios. Should Hilary Clinton win the presidency but the Democrats fail to win a majority in the House of Representatives in congressional elections, “the additional fiscal stimulus should be modest”, boosting GDP by 0.2-0.4% in 2017-2018. But if Donald Trump wins and the Republicans maintain control of both houses of Congress, “we could see a much more meaningful boost”, adding 0.5-1.0% to GDP in the same period, according to Lambert.
Not all the presidential candidates’ policies are growth friendly. Both main candidates have promised a tougher stance on trade policy and Lambert believes there is a clear “risk of a marked increase in trade protectionism whoever wins”. Pictet’s chief economist believes the Trans Pacific Partnership is unlikely to be ratified by Congress, that Transatlantic Trade and Investment Partnership negotiations will be curtailed, and that “we will likely see some increase in import barriers”. Particularly forceful protectionist measures are likely if Trump is elected.
Also in the October issue of Perspectives, Pictet Wealth Management’s chief investment officer, Cesar Perez Ruiz, highlights the distortions in financial markets being caused by changes in international bank regulations. These changes, he writes, may be making banks more secure but are “arguably making financial markets less safe overall”. He cites the impending change to regulations governing US money market funds, which is creating a dislocation between Libor and short-term Treasury yields and tightening financial conditions. However, with every distortion comes an opportunity. “In a world of higher correlation among asset classes, and also more stringent regulation”, Perez Ruiz writes, “it becomes “even more important to exploit the inefficiencies that we believe exist”.