An American recession looks less likely by 2020, and increases Trump's opportunities for re-election
President Trump in November in Chattanooga, Tenn. (Jonathan Ernst / Reuters)
A significant shift has taken place on Wall Street and among many economists and business executives in recent weeks: Fear of an impending downturn has faded and been replaced by cautious optimism, especially in 2020, a trend that fits good to President Trump when he seeks re-election.
The International Monetary Fund is a good example. It made headlines last week when it turned its global growth forecast to the lowest pace since the financial crisis, but the outlook is not as gloomy as it sounds. The IMF also predicted a rise later this year and slightly stronger growth next year for the world economy, which should be positive for the US.
"After the weak start, growth is expected to increase in the second half of 2019, the IMF chief economist Gita Gopinath wrote in a blog post.
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The IMF is not alone in its optimism. The US stock market had the best first quarter since 1998, and Goldman Sachs says the probability of a recession in the next year has been cut to half to 10 percent.
It's a plausible story to tell explaining why this optimism has happened: A trade agreement between the United States and China looks likely China's economy seems to stabilize, and the Federal Reserve (along with other central banks) has shown that it will do all it can to keep this expansion going.
Many Of the major fears that drove the stock market down at the end of last year and caused anxiety about a US and global recession by 2020, the downturn has been declining. someone now about an "upside surprise" that the US economy can grow faster than expected, especially if businesses are starting to spend more like Trump's trade wars, and the Fed does not raise interest rates. [19659008] "The economy can grow more than 2 percent this year. I think it's going to be the big surprise," said Scott Minerd, global chief investment officer at Guggenheim Investments.
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Almost no independent experts say the economy will grow above 3 per cent in 2019 and 2020 as the White House track, but most forecasters are now in the range of 2 to 2.5 per cent in 2019 and around 2 per cent in 2020, which is probably good enough to keep unemployment low and wages rise in one robust pace.
How the economy prices in spring 2020 are likely to play a major role in Trump's re-election chances, according to election experts such as Larry Sabato of the Center for Politics at the University of Virginia, the best guess now is that the economy early in 2020 will not produce the "big" growth that Trump likes to boast, but there is a decent chance that it will be good enough to give him an edge over his democratic opponent.
"If unemployment is still 3.5 to 4 percent, and gas is still $ 2.75, and the stock market is still near record high, so the economy is probably on the back of the president or at least not a wind wind, "said Mark Zandi, chief economist at Moody & # 39; s Analytics. "If you connect this scenario to our election model, Trump wins or it's close."
Predicting where the US economy is heading, it is notoriously difficult, perhaps even more so now, when it shows clear signs of slowing down from the robust pace of growth last summer. And it is unclear whether the nation is experiencing a slight deceleration or something deeper.
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On the upside, US companies continue to employ a strong pace, and wages are rising, including for lower skilled workers, who will make Americans comfortable enough to continue to spend. The housing market also shows signs of recovery, another indication that people are still secure on the economy and their personal finances.
China, a nation Trump often berates, also gives a boost to global and American economies by stimulating its own. The world's second largest economy, China said on Wednesday that growth was 6.4 percent in the first quarter, slightly better than expected, and a sign that China has stabilized despite the commercial war.
But not everything is good. The US industry sector has seen a noticeable decline this year, and the business and consumer sentiment, but still high by historical levels, is down from where it was some months ago. Europe also continues to look weak and must sort out the UK's exit from the EU this fall. The Brexit situation will not be "the first time in about 45 years, so we have had a major negative supply shock to an advanced economy," said Mark Engney, bank of England Governor.
Diane Swonk, chief economist at Grant Thornton, said, "We don't know how to go at times, but the list of things that can trigger one, gets longer, not shorter. Many landmines remain."
Trump has repeatedly accused the Fed, especially Stol Jerome H. Powell, of slowing down the economy by raising interest rates too quickly last year. (The Fed raised interest rates a full percentage.) But economists, investors and business leaders no longer see the Fed as a concern now that Powell has indicated that the central bank is "on hold" and it is unlikely to raise interest rates again this year. [19659018] With the Fed on the sidelines, Trump is likely to play a major role in whether the economy and markets hit expectations or disappointments, based on what's happening to trade and the federal budget. On trade, he has called himself "tariff man", sparking fear that his trade war will not end. Many people ask now: After Trump has concluded an agreement with China, will he turn his ire on Europe or Japan?
Europeans "barely take our agricultural products and yet they can sell Mercedes-Benz and they can sell everything they want in our country," said Trump on Monday, and signaled his ongoing desire to reduce the US trade deficit with Germany. "It's not fair."
Trump has not yet removed any tariffs he has put in place. Even steel and aluminum tariffs in Canada and Mexico, which he said was a negotiation tactic, did not change after the North American Free Trade Agreement was revised this fall and became the agreement between the United States and Mexico and Canada.
"All the optimism about the economy presupposes that the trade conflict between the United States and China has rolled back, and Mr. Trump does not start imposing auto tariffs on the EU and Asia," said Joseph Brusuelas, chief economist at the accounting firm RSM.
Trump's best chance to spur the economy may be to make a budget deal with House Speaker Nancy Pelosi (D-Calif.) In September. The federal budget is to be cut for the next fiscal year in a process known as sequestration, but Pelosi and Trump can easily keep funding levels the same as this fiscal year – or even go a little higher.
"The White House is going to come to the table with Speaker Pelosi," Brusuelas said. "The only tool you can use to boost your finances before the election is government spending, especially if the Fed stays on hold."
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