Donald Trump hasn’t moved into the White House yet, but the president-elect is already influencing the outlook for global economic growth. This week, the International Monetary Fund raised its US economic growth forecast by half a percent for 2017 and 2018, as a result of Trump’s planned tax cuts, infrastructure spending and regulatory reform. The IMF now expects the US economy to grow 2.3% this year and 2.5% next year.
But Paul Sheard, chief economist at S&P Global, says the outlook for economic growth is largely dependent on which Donald Trump we get in the White House.
Sheard believes there is the “relationist” Trump, someone who sets the bar high for growth and wants to “Make America Great Again,” and then there’s the “protectionist” Trump, who wants to restrict foreign competitors. “Which Trump really emerges in the presidency will be a key factor for the markets,” Sheard tells me at the 47th annual World Economic Forum in Davos, Switzerland.
In the video above, Sheard says when it comes to economic policy, central banks have been the only game in town for years. “There’s been too much dependence on monetary policy,” says Sheard. He believes the potential re-balancing of macro-economic policy toward fiscal policy will have a positive effect on growth.
As for Trump’s tough talk on trade, Sheard says the markets are taking the view that an all-out trade war is not in the cards. “Certainly the supply-side reforms, tax reform, winding back some of the excessive regulation on business can unleash the animal spirits in the business sector.”
Sheard believes Donald Trump has the ability to shape sentiment that can ultimately be a stimulus for economic growth. He says “Make America Great Again” is not only a good campaign slogan, it’s also a good business slogan.
“Americans are prone to looking at the sunny side of things,” Sheard says. “After a rather dismal eight or nine years, perhaps it’s time for those animal spirits to be unleashed.”
