Blog: The Trump Effect - a pivotal year for policy

Standard Life Investments chief economist Jeremy Lawson examines the trajectory of global growth and the possible economic implications of a Trump presidency.

Prior to the election, we saw increasing evidence that global activity had been improving. Stronger nominal growth also means a return to positive corporate profit growth and we are anticipating that this will continue to improve over the next 12 months.

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.

A raw fiscal stimulus of 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 whole percentage point higher than our forecasts without stimulus. In turn, stronger US growth would have knock-on benefits for import demand from the rest of the world, though it would also be pulling future growth forward and probably bring higher Fed policy rates with it.

Other than tighter monetary policy and a stronger dollar, the biggest macro and market downside risks from a Trump presidency arguably derive from his trade agenda – such as his pledges to withdraw from the Trans-pacific Partnership, declare China a currency manipulator and lift tariffs. A new era of protectionism would be negative for the global economy.

Hence the importance of identifying Trump’s real intentions as President. 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.

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