Citigroup Warns About Trump: A Win Could Trigger A Recession

Citigroup continues to expect lethargic global growth over the remainder of 2016 and into next year, up 2.4 percent and 2.7 percent at market exchange rates, respectively. According to a report by Citigroup Inc C Chief Economist Willem Buiter and his team, poor, uncertainty-driven real estate investment, especially within emerging markets, has been one of the main reasons behind the weak global activity.

Going forward, however, the world will see advanced economies grow relatively steadily and emerging markets pick up their pace, the analysts predicted. Notwithstanding, uncertainty will linger, particularly (but not only) surrounding the U.S. presidential election, they added. And, while Citi’s base case contemplates a Clinton victory and relative continuity in policy, risks remain considerable.

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“On the upside, significant fiscal stimulus may follow, boosting both US and global growth,” the note explicated. “However, the election outcome (particularly a Trump win) could prolong and exacerbate uncertainties and trigger a slowdown in US and global growth,” as financial conditions tighten — by one-standard deviation, Citi estimates — and uncertainty continues to rise.

It should be noted that Buiter has been warning about a marked slowdown in the global economy for almost a year but had previously pinned it on decelerating growth in China.

The firm’s most recent calculations show a Trump win could result in an 0.7 to 0.8 decline in global GDP growth, pushing the figure below Citi’s global recession benchmark of 2 percent at market exchange rates in 2016 and 2017.

However, it is not all gloomy in Citi’s forecast. "The elections could be followed by a major fiscal boost, perhaps as a deal is struck to increase infrastructure spending while allowing companies to repatriate foreign profits at a discounted rate (under a Clinton or Trump administration) or due to sizable tax cuts (more likely under Trump)," the report concluded.

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Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.