Much hoo-ha over Trump

Much hoo-ha over TrumpTrump not so dangerous, economist says A leading South African economist, Rian le Roux, says Trump’s presidency may not be bad for the world economy. FIN24



Donald Trump’s presidency may not be as dangerous to the world as people may think, said Old Mutual Investments chief economist Rian le Roux.

Le Roux was speaking at a media briefing on the economic outlook for 2017. He shared his views on the outcome of the US election and its impact on the rest of the world.

“Provided we don’t get a ‘full-on’ Trump policy, then the world should be better by 2018,” he said.

Trump’s policy manifesto, which appears to be extreme, is calling for three big moves. These being a big fiscal policy stimulus, foreign trade restrictions and corporate tax breaks.

“The issue is to what extent he will be able to implement that,” said Le Roux. “My view is that there will be a lot of pushback.”

Global trade restrictions will be met with retaliation, geopolitical problems and global opposition, explained Le Roux.

Trump also proposes US$7 trillion worth of tax cuts and $1 trillion worth of infrastructure spend.

“The US economy is $18.7 trillion big, which makes the total 43% of gross domestic product. Given this information, this proposal is not doable.

“This is partly because the US government debt is 100% of gross domestic product. If fully implemented it will add 26% of gross domestic product to government debt,” he explained.

Trump’s policy, which calls for fiscal expansion, will put more pressure on the Federal Reserve Bank. This will result in wage increases, more inflation, and faster rate increases by the Fed. The dollar will be stronger and a surging dollar will add dangers to the rest of the world.

“A strong dollar is bad for the world. [Historically] all big surges coincide with trouble around the world,” said Le Roux. Capital will shift from the rest of the world to the US and commodity prices are likely to fall because of a stronger dollar. The Fed will have to consider the added pressure on the rest of the world when they make decisions.

The US may do well for a while, but then be hit by the impact on the rest of the world.

“It might be okay for the US in the short term but it won’t be great in the long term,” said Le Roux.

A moderate version of Trump’s policies will involve a decent, not extreme, fiscal stimulus. The US will grow faster but it won’t result in capital flight from the rest of the world, explained Le Roux.

This will also involve moderate trade restrictions, and the dollar will be moderately firmer.

“Essentially this will not be bad for the world. It will actually be quite good and can result in recovering global confidence.”

Le Roux added that markets have priced in a moderate situation, which is why expectations of Trump’s presidency may not be bad for the world economy.