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What a Trump presidency could mean for Europe’s economy
- Economic Impact:
- GDP Hit: Goldman Sachs predicts a potential 1% reduction in the eurozone’s GDP.
- Inflation: A modest increase of 0.1 percentage points in inflation is expected.
- Trade Policy Uncertainty:
- Trade Tensions: Previous trade tensions with the EU during Trump’s presidency, including tariffs on steel and aluminium, could resurface.
- New Tariffs: Trump has proposed a 10% tariff on all US imports, including those from Europe, likely increasing trade policy uncertainty.
- Impact on Industrial Production: Historical data shows that trade policy uncertainty reduced eurozone industrial production by 2% in 2018-19.
- Defense and Security Pressures:
- Reduction in US Aid to Ukraine: Trump might cut or completely stop US aid to Ukraine.
- NATO Funding: European countries may need to increase defense spending to meet NATO’s 2% GDP requirement, potentially adding 0.5% of GDP in defense spending per year.
- Geopolitical Risks:
- US Commitment to NATO: Questions may arise about the US commitment to NATO, increasing geopolitical risks and uncertainty.
- Repercussions of US Domestic Policies:
- Tax Cuts and Deregulation: Trump’s domestic policies, such as tax cuts and deregulation, could boost economic activity in Europe but the overall impact might be limited.
- Spillover Effects: Changes in US macroeconomic policy could affect Europe through stronger US demand and tighter financial conditions.
- Market Reactions:
- Increased Probability of Trump Victory: Betting markets have increased the probability of a Trump victory to around 60%, rising further after recent events.
- Market Movements: Certain assets have risen as markets price in the possibility of Trump’s re-election.
- Recent Events:
- Assassination Attempt: Trump survived an assassination attempt, which some analysts believe could boost his chances of winning the election.
