Donald Trump and the US economy
Political risk has crossed the Atlantic, moving from the Euro area to the Americas (US and Brazil). In the US, investors are getting more skeptical everyday on President Trump’s Administration ability to deliver any of the economic promises made. Experts and analysts now wonder if the Republican Party would not be better off without President Trump? So far, not so good indeed:
– a significant reform of Obamacare seems just impossible;
– no savings in public spendings, means no margin to cut taxes significantly, all the more so that the Border Adjustment Tax has raised massive opposition, especially among large retailers .
– finally the President has cut into many so-called job-killers regulations (lifting environmental constraints mainly but also food regulations etc.): these may please many lobbyists at pressent, but are unlikely to satisfy consumers. Coal production is unlikely to be boosted with the current level of oil prices.
So the White House may not be able to pass any significant spending/tax reduction measure, without jeopardizing the budget long term balance beyond what is legally possible. We do not even see any infrastructure programme being considered either.
Should markets start to panic? The paradox is that the US economy can continue to perform at the current pace of growth without producing too much inflation. Q1 corporate profits beat expectation expect in the retail sector (due to the internet shift), consumer confidence is at a historical high, and industrial production rose by 1% in April alone. The US are benefiting from the rising demand from abroad, and a weakening dollar may help further.
We still see growth around 2% this year. So one question remains: how the US economy will endure the continuing Fed monetary policy normalization (i.e progressive rate hikes and slow tapering).