While global growth has proved resilient to policy tightening, significant divergences have emerged across countries, and the outcome of the US election has increased the risks for that trend to amplify. Furthermore, by choosing not to act on any assumptions about what the incoming US administration might enact, combined with the long and variable lags of monetary policy, the Fed will struggle to contain the economic consequences of Donald Trump’s priorities.
Regional divergence to widen further
The US experienced the fastest GDP growth of all G7 countries in the past two years 1, and this exceptionalism has generally been positive for growth elsewhere, as US demand boosted global trade flows and asset prices.
Amid promises of loose fiscal policy and stimulated by businesses’ animal spirits, the US economy should stay robust in the short term. In addition, the introduction of tariffs on all imports could foster economic activity, as demand shifts from foreign to domestic goods, enabling the country’s trade deficit to improve.
