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Donald Trump may have timed his rise perfectly

Donald Trump is gloating about Joe Biden's latest secret document woes.<i>Photo: Getty</i>

Donald Trump is gloating about Joe Biden's latest secret document woes.Photo: Getty Photo: AAP

Donald Trump may have timed his presidency to economic perfection.

Eight years after the great recession, green shoots are sprouting in the global economy. With Mr Trump’s promised jolt of fiscal adrenalin, we could be headed for a Ronald Reagan repeat.

The signs of potential recovery are fragile. Economists are wary of spooking them. But they are clearly visible, according to Professor Fabrizio Carmignani, a macroeconomist at Griffith University.

fabrizio carmignani

Professor Fabrizio Carmignani sees signs of future recovery that President Trump could seize upon.

“The signs are a bit weak and still a bit unclear, so I wouldn’t call it a global recovery, not yet. But we can certainly see a possible transition out of the global contraction,” Prof Carmignani told The New Daily.

“Signs today look a little bit less negative than how they looked even just six months ago, and Trump could use that to his advantage.”

The Conference Board, an international research association, was predicting, before the Trumpet sounded, that the global economy would grow by 2.6 per cent in 2017, up from a predicted 2.2 per cent this year.

In October, The International Monetary Fund was also cautiously optimistic, although Brexit and other shocks revised down its projections. We’ll see global growth of 3.4 per cent next year, up from a forecast 3.1pc for 2016, the IMF predicted.

An opening at the Fed

For all of Mr Trump’s bashing of the Federal Reserve, the central bank could be the first to hand him some welcome economic news.

The word on Wall Street is that the Fed may start lifting rock-bottom rates as early as January next year, the same month of Mr Trump’s inauguration.

The Fed under Janet Yellen looks poised to finally lift the federal funds rate target, which is currently 0.25-0.50. Photo: AAP

The Fed under Janet Yellen looks poised to finally lift the federal funds rate target, which is currently 0.25% – 0.50%. Photo: AAP

Back in September, Federal Reserve chair Janet Yellen said the US economy “has a bit more running room than might have been previously thought” and the case for increasing rates “has strengthened”.

After Mr Trump’s win, Fed vice chair Stanley Fischer told a conference in Chile the case remained “quite strong”.

If things start looking up, as a rate rise would signal, Mr Trump will be perfectly placed.

The same thing happened to President Reagan in the 1980s. Republicans claim his ‘Reaganomics’ – a mixture of tax cuts for the rich and shrunken government spending – turned around the US economy from 1983 onwards.

But plenty of others say the credit actually belongs to Fed chair Paul Volker, whose monetary policies slayed the inflation dragon. Either way, we know Mr Trump won’t be shy of claiming any improvement as his own.

As it stands, equity markets are up and gold is dropping, a clear sign of confidence. The US Dow Jones industrial average hit a record high of 18,844 points at close of trading on Friday. And on Monday, Australia’s benchmark ASX 200 was trading around 5300 – a dramatic reversal of fortunes after it plummeted to 5052 on Mr Trump’s shock victory.

An infrastructure boom

There is even speculation that President Trump will aid the global recovery with his promised one-two punch of tax cuts AND fiscal stimulus.

The centrepiece is an 82 per cent tax credit to encourage the private sector to invest in profit-generating infrastructure.

white house construction

Trump has pledged a huge tax incentive for infrastructure projects. Photo: AAP

If Mr Trump delivers, the US could be in for stronger economic growth and higher inflation, clearing the way for the Fed to lift rates.

“We do view the election of Donald Trump as a game changer,” Commonwealth Bank head of debt research Adam Donaldson told Bloomberg.

“The strong bias toward fiscal expansion and inflationary policy represents a stark change to the malaise of recent years. This opens the door for the Fed to hike in December, but also more quickly in 2017 and 2018 than previously expected.”

Two Australian analysts at JP Morgan have raised the possibility that demand for our iron ore could be boosted even further by Mr Trump’s infrastructure plan.

Australia is already benefiting from a mini commodity boom. The price of coking coal, an integral ingredient in steel making, has almost tripled this year, and iron ore is spiking too, because of Japanese demand.

He may not gloat for long

Prof Carmignani fears any blip will be short-lived, and not worth the long-term pain.

donald trump protestor

Trump’s economic plan will eventually explode in his face, economist predicts. But it could take a few years. Photo: AAP

Given that US unemployment is currently 4.9 per cent (better than Australia’s 5.6 per cent), massive jobs stimulus is unnecessary, unsustainable and will create further inequality, he said.

“Let’s be clear: some US industries are declining, but you can’t stop this by building a wall or going back to protectionism.

“What is needed is fiscal support for economic transformation. Help people who are losing their jobs in a declining industry to find a new job in an emerging industry. Trump is not doing that.”

President Trump will eventually crumble under the weight of debt, deficits and shrunken tax revenue and be forced to take an axe to social spending, which could impede the global recovery, Prof Carmignani warned.

Or was it all smoke and mirrors?

Many economists are also petrified that Mr Trump will start a trade war.

A return to the protectionism of yesteryear, as a boon to the distressed blue collar workers in the rust belt of Michigan, Pennsylvania, Iowa and Wisconsin that handed Mr Trump the White House, would slam the brakes on global growth, many have warned.

But will he actually do it? In the days after his win, Mr Trump and his campaign have taken a fire hose to many of his more controversial ‘promises’. The Mexican wall is now a ramshackle fence. The Muslim ban is gone. And he’s now “fine” with gay marriage.

Who knows what he’ll abandon next.

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