Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ News / World/  Donald Trump’s protectionist policies top risk to US economy in 2017: poll
BackBack

Donald Trump’s protectionist policies top risk to US economy in 2017: poll

Donald Trump vowed to make sweeping changes to US trade and immigration policy, threatened to impose steep tariffs on Chinese imports and proposed hefty tax cuts

The uncertainty is heightened by the signs of a rise in nationalist sentiment worldwide, as exemplified by Britain’s surprise vote last year to leave the EU and Donald Trump’s shock US election victory. Photo: ReutersPremium
The uncertainty is heightened by the signs of a rise in nationalist sentiment worldwide, as exemplified by Britain’s surprise vote last year to leave the EU and Donald Trump’s shock US election victory. Photo: Reuters

The top risk to US growth would come if US president-elect Donald Trump keeps his protectionist promises, according to a Reuters poll that shows economists have not joined in the market exuberance since the shock November vote.

For most of his campaign and after the election, Trump vowed to make sweeping changes to US trade and immigration policy, threatened to impose steep tariffs on Chinese imports and proposed hefty tax cuts.

While financial markets have retreated in the past week and hopes of a sudden spurt in inflation have faded, US 10-year Treasury yields are still up more than 25% since election day, and stocks have hit record highs.

Still, more than two-thirds of the 70 respondents to the question in the Reuters survey taken over the past week said Trump’s protectionist policies were the biggest threat to the world’s largest economy this year.

ALSO READ | Donald Trump shakes postwar order, in blow to Europe

“There is no question that near the top of the list of downside risks is the potential for more follow-through on the anti-free trade rhetoric," said Jim O’Sullivan of High Frequency Economics.

“I am kind of assuming that the (incoming) administration will be practical on this," said O’Sullivan, the top forecaster of US economic data in Reuters polls for 2016, the second year in a row he achieved that distinction.

The strong dollar, which hit a 14-year high early this month and is up close to 6% since Trump was elected, poses an additional near-term risk.

Worries around the globe over Trump’s confrontational style and a strengthening dollar are likely to be key themes among political and business leaders at the World Economic Forum (WEF) in Davos, Switzerland, this week.

Sweeping tax cuts for businesses and individuals, and the prospect of some infrastructure spending, have also not brightened prospects for US economic growth, which Trump has said he aimed to boost to 3.5%.

More than 80% of respondents said “no" when asked if now was the right time for such aggressive tax cuts, with the economy close to full employment. The unemployment rate was 4.7% in December.

ALSO READ | All change for the Trump White House

The latest poll estimated growth slowed to 2.2% in the fourth quarter from 3.5% in the third quarter.

Through 2017, economists predicted the economy would expand at an annual rate of 2.1% to 2.5% each quarter, just 0.1 percentage point higher than the previous estimate. The full-year median was 2.3%.

The most optimistic growth forecast for any point in 2017 was 4.1%, far short of the post-financial crisis peak of 5.6% hit in the fourth quarter of 2009.

“Obviously people have been assuming the growth-sapping parts (protectionist measures) are not followed through, but they may have run ahead of themselves in predicting how much stimulus will be enacted and how much growth will be boosted," said O’Sullivan, who was also the most optimistic on growth among the top forecasters.

A little fewer than one-third of the respondents, including three of the top 10 US economy forecasters in Reuters polls last year, upgraded their 2017 growth outlooks in the latest poll.

ALSO READ | One habit Donald Trump says he will keep as president: tweeting

Many of them, like O’Sullivan, said it was mainly on the assumption Trump would not follow through on his restrictive trade agenda and instead focus on boosting growth through fiscal measures.

While those projected growth rates may be considered healthy for the economy at such a late stage of the recovery cycle, they could do little to boost inflation much beyond the Federal Reserve’s 2% target.

Inflation pressure is more likely to come from a round of retaliatory tariffs if Trump’s protectionist agenda becomes a global reality.

Even though pay growth is forecast to average 3.0% this year, up from 2.8% in December’s poll, the Fed’s preferred gauge of inflation, the Core PCE Price Index, will probably average 1.8% in 2017 and 2.0% in 2018, unchanged from the last poll.

Fed policymakers recently warned that with the economy close to full employment, an expansive fiscal policy could lead to faster rate hikes than currently priced in, pushing the US dollar higher.

“If the unemployment rate falls some more, it is going to add to upward pressure on wages and inflation and reinforce the case for Fed tightening," O’Sullivan said.

The wider poll of over 100 economists, including 17 large banks that transact directly with the Fed, showed rates would remain unchanged at 0.50% to 0.75% until the second quarter, when a 25-basis-point hike is likely.

A follow-up increase is expected in the fourth quarter, taking the Fed funds rate to a range of 1% to 1.25%. Fourteen economists, however, forecast a hike by March. Reuters

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 18 Jan 2017, 06:42 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App