Economists say U.S. election is taking a toll on growth
The race for the White House is making for dramatic political theater, but it is drawing catcalls as far as the U.S. economy is concerned.
Uncertainty around the November presidential election is hurting America's growth prospects, the National Association of Business Economics (NABE) said Monday in trimming its forecast for gross domestic product this year to 1.8 percent, which would amount to the slowest pace of annual growth since 2011. Only three months ago, the group was projecting annual GDP of 2.4 percent.
"Nearly 60 percent of the panel views uncertainty surrounding the upcoming election as damaging to GDP growth in 2016," said NABE President Lisa Emsbo-Mattingly, who is director of research in the global asset allocation group at Fidelity Investments.
The electoral outcome of the campaign isn't the only factor throwing a shadow over the economy, according to NABE, which based its findings on a poll of 48 economists. Four in 10 forecasters also expressed concern that rising nationalism around the world, including the spread of protectionist trade policies, could dent growth. The second-greatest threat to global growth is terrorism, it found.
Although it may not be surprising that a professional business association would express concern about heightening nationalist tensions, other experts have echoed NABE's warning. Economists with research firm IHS said in a recent note to clients that "apprehension about extreme policy statements by U.S. presidential candidates has begun to undermine business confidence and could deter capital spending and hiring plans by US companies."
Another factor denting growth is a June 23 vote in the U.K. on whether to exit the European Union, IHS said.
Analysts with Goldman Sachs (GS) note that consumer confidence tends to increase in presidential election years. But that pattern may not hold in 2016 because the candidates in this year's race have significantly lower favorability ratings among voters than in the last several presidential contests.
Larry Summers, an economist and former U.S. Treasury Secretary under President Bill Clinton, sees a greater threat to the economy than the usual bugaboo of uncertainty: Donald Trump.
"Indeed, if he were elected, I would expect a protracted recession to begin within 18 months," Summers wrote in a weekend op-ed in The Washington Post. "The damage would in all likelihood be felt far beyond the United States."
Summers said Trump's plan to slash taxes by more than $10 trillion, along with the presumptive Republican nominee's statement that he would push to renegotiate America's debt load, would erode confidence, spook investors and undermine the primacy of the dollar in global financial markets.