Miguel Jiménez González-Anleo, BBVA Research
What does the arrival of donald trump to the American presidency for the prospects of the global economy? It is very difficult to predict. For the moment, the key variables seem to evolve without many changes at the end of the year, with a soft landing in the United States for an economy that has resisted with good growth rates the period of high interest rates from the Fed while inflation approaches. to your target. China and Europe are having more problems, with weakness in economic activity and many structural challenges, although a moderation in inflation is also observed in Europe. So far, little news.
However, we know that this apparent calm hides a potential turbulent scenario going forward due to the economic policies announced in the American electoral campaign, which with proposals very far removed in some cases from economic orthodoxy have put fear into the body of many economists and governments. foreigners, and make macroeconomic predictions for the medium and long term more difficult to balance.
What was promised economically is disruptive in some aspects, and as a whole internally incoherent. The list of measures includes making the 2017 tax cuts permanent, reducing them additionally for companies, expelling a large number of illegal immigrants, increasing tariffs by 10% or 20% horizontally (except for China, where it proposes 60%) , deregulate the economy, reduce the number of officials, and ensure that the Fed does not keep interest rates too high. All of this with the intention of recovering jobs in the industrial sector, promoting growth, eliminating external deficits, and avoiding excessive appreciation of the dollar.
The stock markets have bought, for the moment, the optimistic version of these policies: Deregulation and fiscal impulse will boost investment and growth, obstacles to immigrants will be cosmetic (without affecting the labor supply of an economy with a high unemployment rate). very reduced), and tariffs will only be negotiating weapons to achieve tactical objectives in different areas.
However, the risks that tariffs are more than the instrument of a “transactional Trump” are real, in part because his mercantilist vision of the economy is known, and because the learning from his first term, plus some of the appointments For their government, they point out that protectionism can be more than just a threat.
Given the expected changes in trade policy, and without considering the effects of deregulation or the materialization of any type of pressure on migratory flows, BBVA Research has revised global growth forecasts for the coming years. Higher tariffs in the United States would slow the slowdown in its inflation rate, which could reach 3% and 2.8% in 2025 and 2026, respectively, while growth would remain at levels close to 2%. The tariff impact on European exports (assuming a 10% tariff increase), together with the weakness demonstrated on several fronts, would reduce eurozone growth to around 1% in both years, when previously we expected a greater recovery thanks to the improvement in disposable income and consumption. China could also be negatively affected, although the room for maneuver in its fiscal and monetary policy would help minimize the impact.
These effects of higher inflation in the United States and lower growth in Europe and China, which can be extended to many other countries if protectionism becomes widespread, would lead to an appreciation of the dollar against the rest of the currencies – which has largely already occurred after the electoral results – and divergent monetary policies between the Fed (more cautious and restrictive) and the rest of the central banks (more aware of the impact on growth).
Evidently, the scenarios that are opening up are very uncertain, and could give rise to disparate results, not only due to the new American president’s policy style, but also due to the unknowns regarding other factors, such as the reaction of third countries to protectionist pressures. or the evolution of geopolitical conflicts. An open trade war is one of the risks; So is excess inflation generated by excessive fiscal deficits or immigration restrictions.
