Donald Trump’s unexpected victory in the US election has had an immediate effect on stock and currency markets in the USA and abroad, but once the dust has settled, what does it mean for the US economy and US consumers?
Our Trump downturn scenario shows real GDP growth slowing to 0.3% in 2017, 1.8 percentage points lower than our baseline scenario. Our medium-term outlook for inflation remains broadly unchanged with weak demand offsetting higher import prices. The scenario is based on the following assumptions:
- The Congress and Senate block the most extreme elements of Trump‘s platform and moderate the extent of his proposed tax cuts.
- The uncertainty related to implementation of Trump‘s proposals pushes the US economy into a downturn. Together with worsening trade relations and lower immigrant labour supply, this reduces US GDP by almost 4.7% relative to the baseline forecast in 2017-2021.
The biggest threats to the economy stem from Trump’s protectionist stance on trade, anti-immigration policies and the weakening of government finances stemming from expected tax cuts. Of course at this point in time it’s unclear how many of his policies he would strive to implement and how many were election rhetoric, so this scenario is still subject to considerable uncertainty. Republicans will control both Houses, which would ordinarily make for more certainty, but it is unclear how many of his policies the party will support. In addition he has no experience of governing. Nevertheless his chances of pushing through some of his agenda, particularly tax cuts, are high. More detailed analysis on the economic impact of a Trump downturn scenario is available here. The election is likely to have a wider impact on the business environment, renewable energy, cities and industries and we explore this here.
How will consumers react?
Initially, consumers could adopt a business as usual approach, in much the same way as they did following the Brexit referendum in the UK in June 2016. His victory will be seen in many quarters as a step in the direction of increasing prosperity for ordinary people. However, should the economic direction assumed in our Trump downturn scenario come to pass, the situation is likely to change in 2017 onwards. Our pre-election spotlight on the impact of consumers highlighted several key concerns:
- Childless households are expected to be hit by the fall in government revenues stemming from tax reforms, which could lead to subsidies, exemptions and benefits to these households falling;
- Surprisingly, the top income-wealth segment will suffer disproportionately with a slower increase in the number of households with an income over US$50,000 and wealth over US$200,000 based on our Trump downturn scenario. The slowdown in the economy and trade protectionist measures will outweigh the impact of proposed tax reforms;
- The USA is ageing and population growth is forecast to slow. With tougher controls on immigration these trends are expected to be exacerbated with knock-on effects on the labour force and consumption.
Source: Euromonitor International Future Demographics Model
How would consumer markets be affected?
Our Industry Forecast Models show that in a Trump downturn scenario there will be a relatively broad-based softening of markets. Categories where growth is more driven by income gains will be most-affected, particularly those that are discretionary purchases, rather than essentials. For the main part, a Trump downturn will shave between 0.1 and 0.6 percentage points off growth on a CAGR basis:
- In packaged food we see confectionery, spreads and sweet biscuits, snack bars and fruit snacks seeing the biggest impact, with edible oils barely touched.
Packaged Food Volume Sales Forecasts in a Trump Downturn Scenario: 2016-2021
Difference in forecast growth
Source: Euromonitor International Industry Forecast Model
- In beauty and personal care we see men’s grooming products being most affected, with mass beauty and personal care barely touched.
Beauty and Personal Care Real Value Sales Forecasts in a Trump Downturn Scenario: 2015-2020
Difference in forecast growth
Source: Euromonitor International Industry Forecast Model
- In alcoholic drinks we see growth facing headwinds and entering a volatile period, but with craft and micro brewers potentially benefiting from localisation and anti-status quo rhetoric.
Alcoholic Drinks Volume Sales Forecasts in a Trump Downturn Scenario: 2015-2020
Difference in forecast growth (On- and Off-trade)
