Trump won’t wreck the Australian economy right away: Deloitte

Peter Terlato 21 November 2016

Trump

A push on "old economy" commodities will provide some momentary relief.

Donald Trump's election as President of the United States has been stained with controversy, with economists attempting to predict how world economies will react. While Australia is currently benefiting from rejuvenated coal prices, this temporary resurgence won't be enough to sustain the effects of potential trade restrictions and political uncertainty, matched with low inflation, according to experts.

In a recent post entitled Trump card: King Coal versus Weak Wages, Deloitte Access Economics' partner Chris Richardson said Trump's win had pushed coal contract prices to $US200 a tonne and spot prices to over $US300, lifting Australia out of the income recession rut we've been experiencing since late 2011.

However, he said the relief is momentary and that because coal companies have been making losses, a switch to earning profits will have a slower-than-usual impact on tax payments.

Deloitte forecasts a 2.5% rise in nominal Gross Domestic Product (GDP) in 2015/16 and 4.9% in 2016/17. These figures may sound exemplary but it's not much higher than the previously anticipated 4.5% rise.

Excess capacity, lower commodity prices and reduced pricing power has led to weak wages growth in Australia and the slowest rate of increase since the late 1990s.

Richardson said Deloitte sees the national wage bill being around 1% smaller in 2016/17, the spike in coal prices fade in 2017/18, and the economy 3.6% smaller in 2019/20 than previous Budget estimations.

While many economic analysts drum up the return of inflation to the US and world economies, strengthened by Trump's forthcoming policy direction, Deloitte isn't as optimistic.

"Trump or no, 'lowflation' will linger. The accelerating fall in China’s currency is a bigger deflationary influence than Trump is an inflationary one," Richardson said.

Despite this, he said Trump's presidency is bigger news for Australia than Brexit. Why? Because the US is a much more influential economy and presidential power is at its strongest with respect to foreign policy.

"Overall policy changes may well be net negatives for the global and Australian economies - especially trade-related developments and the increased potential for geopolitical uncertainties," he said.

In a post on National Australia Bank's (NAB) Investments Insights blog, Dr Susan Gosling, head of investments at MLC, said a Trump victory would be "destabilising for financial markets".

Prior to the election, finder.com.au asked 24 leading Australian economists, who take part in our regular RBA cash rate survey, which US presidential candidate would be better for the Australian economy.

83% opted for Hillary Clinton, 17% said it wouldn't matter but not one economist picked Donald Trump.

Picture: Shutterstock

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, read the PDS or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Ask a question