Will Trump's fiscal policies boost US growth?
Impact expected to be greater in 2018 rather than in 2017; inflation seen creeping up to between 2 and 3%.
Add BT as a preferred sourceONE of the first questions to ask in 2017 is whether the US equity market's strong performance following the US election is set to continue. The markets are assuming that economic growth will get a big boost from changes in fiscal policy under Donald Trump's leadership. Will this expectation hold?
Fiscal austerity peaked in the advanced economies during the period of 2011 to 2013, according to data from the IMF. Since 2013, the fiscal drag on GDP has gradually diminished and instead is estimated to have added to GDP in developed economies such as the US, Europe and Japan in 2016. However, as economic growth continues to fall short of expectations and easy money loses its effectiveness, there have been widespread calls for fiscal policy to do more. It is therefore not surprising to see Mr Trump's policy platform focusing on tax cuts and increased spending to stimulate economic growth.
However, the market's expectation of an immediate boost from the policy may be fraught with several challenges.
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