Donald Trump could be a “wildcard” for economic growth across Asia in the coming year, according to Goldman Sachs.
The President-elect’s apparent protectionist policies could harm nations relying on exports to the US, but his likely fiscal stimulus is set to drive US growth higher, the bank says in its 2017 macroeconomic outlook.
“For a very export-oriented region where US demand plays a big role the potential for US protectionism is very large,” said Andrew Tilton, chief Asia Pacific economist at Goldman Sachs.
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US growth is projected at 2.25 per cent, with inflation being pushed upwards by the new administration’s policies.
However, the impact on the US economy of trade policies has not yet become clear as analysts scramble to work out which promises Trump intends on keeping.
Goldman Sachs’ chief economist, Jan Hatzius, said: “There will be tax reform coupled with some fiscal easing and also some increase in infrastructure spending. We do expect that to provide a positive impulse to economic growth.”
World GDP growth will rise by 3.5 per cent in 2017, says the US bank, with China continuing to hit its 6.5 per cent official target despite fears over its economy.
The forecasts are slightly more positive than those of the Organisation for Economic Co-operation and Development (OECD) which predicts global growth of 3.3 per cent in 2017, and 6.4 per cent in China.
China’s reliance on rapid credit expansion has led to influential central bankers warning of the potential for a rapid slowdown. Bank of England governor Mark Carney has warned China’s “extraordinary” leverage levels could endanger the UK’s financial stability.
However, the Goldman Sachs view is more sanguine – for the moment.
“The concerns in China are really more long-term concerns around the continued very rapid pace of debt growth and the potential for financial weakness and bad debt problems,” said Hatzius.
Meanwhile, the outlook for Europe remains much the same: sluggish but steady growth of 1.5 per cent as the labour market gradually improves.