America is a melting pot of opportunity mixed in with political stalemate that will give its new president a difficult path to steer, says Chief Economist Léon Cornelissen.
He cites four factors that will determine America’s future over the coming years: its interest and inflation rates; the ability of the US to use fiscal as well as monetary policy to avert a recession; the shale oil revolution and associated oil price; and the outcome of the Presidential and Congressional elections on 8 November.
And much depends on who will become the new US President, in an outcome that would be historic either way, with Democratic candidate Hillary Clinton becoming the first woman commander-in-chief, or her Republican rival Donald Trump becoming the first businessman outside of mainstream politics to take the job, Cornelissen says.
“Economically, the US had a very weak first half in 2016, but it’s now improving, with labor and wage growth picking up,” he says. “There are two worrisome points economically – one is that the post-Lehman recovery has been very timid, and that labor productivity is collapsing, and some say this is a structural feature, though I have my doubts.”
‘Sentiment is still weak, and companies remain cautious’
“The second is that investments are lacking and one can debate whether sluggish growth is the cause of this, but it’s true that sentiment is still weak, and companies remain cautious. Part of the reason for this is government policy has been paralyzed because of a Democratic president and a Republican Congress causing a stalemate throughout the Obama years, so this weak investment and lower productivity is a worry.”
Meanwhile, the US base interest rate range of 0.25%-0.5% – hiked for the first time in almost a decade last December – remains below the most recent inflation rate of 0.8%, meaning real rates are slightly negative. “If you have lower real rates of interest due to structurally lower growth potential, it means monetary policy should be looser than it was in the past, to get the business cycle going again,” Cornelissen says. “But the Fed is hugely divided on the ‘true’ level of real interest rates and the growth potential of the US economy, and has been very cautious, which has to be welcomed.”
So, is the US slowly sleepwalking into a recession after seven years of growth? Usually the American economy retracts every five or six years according to the prevailing business cycle, though the financial crisis of 2008 ushered in a world of unprecedented low interest rates that has turned economic forecasting onto its head.
“By historical averages it’s about time that the US drifts into recession, but then a cyclical upturn doesn’t die of old age,” says Cornelissen. “At the moment we are seeing increasing leverage in US companies, but we’re not seeing the kind of excesses that are normally associated with the end of an economic upturn. So we’re not really in the full bull market phase, and this gives some comfort. However, the recovery since the financial crisis has been timid, and some kind of external shock could still push the US into recession.”
“And if the US does drift into recession, then of course the monetary arsenal available is mostly empty. It would be much more sensible to switch to fiscal stimulus such as by raising expenditure on public projects, or by increasing employment. The question is whether the next president would be able to get this sort of fiscal stimulus through; it goes back to the political stalemate being the real problem.”
Cornelissen says much depends on the future of the oil price, a double-edged sword for the US which for decades has been a net importer of energy. On the one hand a low oil price benefits gas-guzzling consumers and keeps inflation low, but it also means lower revenue for small producers which have driven the shale oil revolution in the US.
“Oil is an important factor, but it’s difficult to make a call on the future oil price because the behavior of OPEC countries is so unpredictable,” says Cornelissen. “If the oil price comes down then inflation comes down, and so the pressure on the Fed to raise rates will diminish. The market is quite relaxed about Fed policy: the consensus is for a 50% chance of a rate hike in December, though I would put the likelihood a bit higher. If this happens then it would be a good sign, as it would mean the Fed is confident about the strength of the US economy, allowing a moderate rate hike.”
The future course of America will be determined on 8 November, when elections take place for the next president, the entire House of Representatives and one-third of the Senate. “For economic policy, it would be a good thing if the President and Congress are of the same politic color, be that either Democratic or Republican,” says Cornelissen. “What’s important is not to have the continued kind of stalemate that has bedeviled the US, with a Republican Congress vetoing any initiatives by a Democratic president, or vice versa.”
“So the outcome of the US elections is important to see how much room for maneuver the next president will have on this front. Continuing political stalemate means the US economy would be vulnerable if it drifts into recession through some external shock, and it can’t use the recipe of fiscal policy due to the stalemate. The job of being the next US president isn’t necessarily something you should strive for.”
当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。
商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会