Economists warn Trump victory would be 'horrible' for NZ economy
The cost of borrowing could rise and the dollar is likely to rise if Donald Trump wins the US Presidency, a grim new warning from an economic think tank claims.
A note from the New Zealand Institute of Economic Research (NZIER) claims that a Trump victory would be "horrible" for New Zealand's economy, with both households and companies suffering.
While Democrat Hillary Clinton is still generally favourite to win November 8 (US time) election, polls have showed the gap closing.
Prediction markets put the probability of a Trump victory at around 20 per cent.
NZIER deputy chief executive John Ballingall said this would lead to "significant instability" in financial markets.
"Borrowing costs for New Zealand firms and mortgage-holders are likely to rise as credit conditions tighten in the face of uncertainty," Ballingall said.
As well as a likely headache in the short term for markets, NZIER suggested the problem could go for longer if Trump's recent political activities were anything to go by.
"[T]he way he has managed his campaign and the people associated with it suggests there might be a degree of chaos about the process of selecting and confirming key players in a Trump administration."
Meanwhile, equity markets would probably fall and the US Federal Reserve would probably hold of plans to raise interest rates, in a bid to boost confidence.
Longer term, NZIER pointed to one warning that Trump's plans to impose hefty tariffs on Chinese and Mexican imports cutting 4.8 million jobs.
This would likely hurt New Zealand's $8.4 billion of goods and services exports to the US, as well as slowing global growth, which could hurt New Zealand's exports more generally.
"Despite Trump's assurances about how 'great' or 'terrific' the economy will be under his watch, his policy prescriptions don't warrant a great deal of optimism in our view," Ballingall said.
ANZ chief economist Cameron Bagrie said there was no need to issue "chicken little" warnings, pointing to extremely negative view the business community had to the incoming Labour Government in 1999.
"Business confidence collapsed, but did anything really change? The answer is 'not a lot'," Bagrie said.
"There tends to be an awful lot of bluster out of politicians and once they get in the chair, by and large, they seem to be reasonably sensible.
"Markets are going to be naturally on edge, but to say that armageddon's around the corner, we can keep chicken little at bay. I just don't think that's helpful."
If there was a "Brexit style" shock result, which caught markets completely offside, it could lead to a week of financial turmoil, Bagrie said.
However if markets saw the risk of a Trump victory rising in the coming days, markets would move lower over a longer period, but would quickly digest the result.
More broadly though, Bagrie questioned the buoyancy of markets around the world given the clear swing in political opinion towards populist, anti-global parties, which could have an impact in elections throughout 2017.
"We are very clearly seeing an anti-globalisation thematic which is coming to the fore, and that's not going to be good for trade, it's not going to be good for global growth."
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