(Bloomberg) -- The US election is emerging as one of the top risks to the global economic outlook, though it’s tougher than usual to predict just how it will play out, according to Bank of America’s head of global economics research.
Both candidates — former President Donald Trump and Vice President Kamala Harris — have yet to specify their policy platforms and are operating in an economy that’s quite different from just four years ago, Claudio Irigoyen said in an interview in Hong Kong Thursday.
Investors have a lot to digest before the November election, which could change the picture drastically, he said, including upcoming payrolls reports and a pivotal Federal Reserve meeting later this month.
“It’s too early to really see what the different platforms will look like in reality,” Irigoyen said. “The market is not trading the election yet. The market has been focusing a lot on the behavior of the US economy” and how much the Fed will cut interest rates this year, he added.
Irigoyen spoke after the lender lowered its forecast for global economic growth this year to 3.1% as the outlook for China weakens. Meantime, the US economy is holding up, despite some pullback in the labor market, with Bank of America seeing a soft landing where growth slows without causing a major dislocation of jobs.
Investors have increasingly keyed in on the payrolls report and other indicators to gauge the state of the US economy after a weak reading last month spurred a market meltdown. The jobs report Friday is set to show an increase of 165,000 payrolls in August, a bump up from July, according to a Bloomberg News survey.
Major reports like this, as well as the Federal Open Market Committee’s interest-rate decision and outlook, are taking priority over the election — at least for now, Irigoyen said.
“Between now and the election there will be other shocks,” he said.
Numbers Game
With the Nov. 5 presidential election less than nine weeks away, some investment banks have begun gaming out the potential economic implications of a Republican or Democratic victory.
Goldman Sachs Group Inc. this week cautioned that US GDP faces a hit in the case of a Trump victory as the drag on growth from tariffs and tighter immigration would outweigh the boost from a positive fiscal impulse.
Trump has floated across-the-board tariffs of 10% on imports and levies of 60% on Chinese goods. Harris has described such plans as a tax on the middle class, but is broadly expected to continue on President Joe Biden’s path of trying to reduce reliance on Chinese imports and block its access to advanced technologies.
The challenge for the Fed will be contending with the risk of higher inflation if heavy tariffs are implemented, Irigoyen said. A Republican sweep would present the highest risk of abrupt policy change, Bank of America found in a July report, with the boost from lower taxes canceled out by higher tariffs.
Given the uncertainty, investors are likely to play it safe ahead of November.
“When the platform of the candidates are not so clear cut or the odds on the outcome of the election are not that obvious, markets are reluctant to start placing their bets too much in advance,” Irigoyen said.
Irigoyen expects the World Bank will revise down its forecast for global growth this year. The organization in June revised up its projection to 2.6%, largely on the back of robust US activity.
“The downside risks are more important now than three months ago,” he said.
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