Economic Outlook Under a Second Trump Presidency
A new era of pro-business policies is likely to unfold under a second Trump administration, with potential benefits for the US and global economy in the short term. The extension of 2017 tax cuts and increased government spending could boost economic growth, leading to favorable consequences for debt issuance and the overall economic outlook.
Monetary Policy and Deregulation
President Trump is expected to pressure the Federal Reserve to reduce interest rates further, while pursuing deregulation in the financial and other sectors. This could lead to a more favorable business environment, but also raises concerns about the potential for unchecked growth and instability.
Polarizing Politics and Trade Conflicts
However, a second Trump presidency also carries significant risks, particularly if the Republicans retain control of the House of Representatives. This could lead to even greater polarization in US politics, with potential consequences for global trade and economic stability. Trump’s campaign promises of increased tariffs on imports, particularly from China, could spark trade conflicts and lead to higher credit premiums in emerging markets.
Geopolitical Risks and Domestic Economic Policy
Furthermore, the possibility of the US halting funding for Ukraine’s defense against Russia and unwinding alliances with multilateral institutions could exacerbate geopolitical risks. Domestically, Trump’s reflationary policies may require tighter monetary policy and higher global interest rates, leading to increased economic volatility and financial-system risk over the medium term.
US Sovereign Credit Outlook
The election results raise significant risks for the US sovereign credit outlook, rated AA by Scope Ratings. Even with Republican majorities in both chambers of Congress, a battle is likely to ensue in 2025 around lifting or suspending the debt ceiling, given Trump’s plans for increased federal spending and tax cuts. This expansionary fiscal agenda could add up to USD 4.1trn to USD 5.8trn to the budget deficit over the next 10 years, further weakening fiscal metrics.
Long-term Consequences
In the longer term, the implementation of more-protectionist and anti-immigration policies could put the brakes on economic growth, leading to higher inflation. Moreover, there is a risk of further weakening of US institutions, such as the rule of law, and challenges to the independence of the Federal Reserve. The dollar’s reserve-currency status could also be eroded over time.
Expert Insights
Dennis Shen, Senior Director in Sovereign and Public Sector ratings at Scope Ratings GmbH, warns of the potential risks and consequences of a second Trump presidency. As primary analyst for the United States’ sovereign rating, Shen provides valuable insights into the potential impact of Trump’s policies on the US economy and global markets.
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