Trump presidency a 'bigly' problem for NZ economy - NZIER
Economists are warning that a Donald Trump presidency would be "horrible" for the New Zealand economy.
The New Zealand Institute of Economic Research (NZIER) has issued a report warning that a Trump victory would be bad news for both households and businesses.
The NZIER says that although Hillary Clinton is still favoured to win, the polls are narrowing. The latest predictions give Donald Trump a 20 to 30 percent chance of victory.
"These numbers are changing daily, and who knows what scandals might surface between now and polling day on November 8."
The NZIER is concerned that most commentators did not give Brexit a great chance of occurring, but were proven wrong.
It predicts the immediate impact of a Trump victory would be short-term volatility in the financial markets. Financial markets hate uncertainty, and the NZIER says: "If Trump were elected President, it's difficult to see this as being anything but a 'bigly' headache for markets."
It would impact borrowing costs, exchange rates and the share market.
NZIER deputy chief executive John Ballingall says borrowing costs for New Zealand firms and mortgage-holders would be likely to rise as credit conditions tighten in the face of the uncertainty created by a Trump presidency.
"This has the potential to push up funding costs, as increased risk-aversion leads to a deterioration in access to credit. Given the international linkages of markets, this could flow through to New Zealand retail interest rates, making household and business borrowing more expensive."
He says it is also likely there would be a "bumpy" ride for currency markets.
Donald Trump (Getty)
The financial markets have been expecting victory for Ms Clinton, so the NZIER warns that a win for Mr Trump would also likely spark a slump in stock prices.
Mr Ballingall says that one estimate predicts Mr Trump's plans to impose hefty tariffs on Chinese and Mexican imports could cut 4.8 million jobs. He says this would hurt New Zealand's $8.4 billion annual exports to the United States and slow global growth, potentially further harming the New Zealand economy.
"That all spells destabilisation in the global trading environment, and New Zealand benefits when global environments are open and free to trade," he told Paul Henry on Thursday.
The NZIER cautions that it is difficult to determine the exact impact on the New Zealand economy due to the enormous uncertainty over the real economic impacts of Mr Trump's policy platform and the path of the exchange rate.
"But a weaker US economy is not great news for Kiwi firms. A weaker US economy will also negative implications for the global economy, so New Zealand exporters could experience a double-whammy."
But not everyone is so concerned about the economic impact of a potential Trump presidency. Veteran US investor Ken Fisher has urged people not to panic.
In an article for Interactive Investor, he points out most major policy initiatives in the US require legislation. But he says gridlock in the US Congress is likely to block most big new laws.
Mr Fisher says this applies to both Mr Trump and Ms Clinton.
"If Clinton wins, she might get a tiny Democratic majority, but not enough to do anything major. Lawmakers will be too worried about re-election in 2018 and won't want to rock the boat.
"If Trump wins and the Republicans keep Congress, about 20 percent of Republican lawmakers won't support him - intraparty gridlock."
Mr Fisher quotes a comment made by President Ronald Reagan.
"Ronald Reagan once said the most capable presidents might get two or three things done. They talk a lot, but they accomplish very little on signature issues. Hence whatever markets fear from either candidate, the reality is probably milder.
"Any new laws will likely be heavily watered down from campaign proposals - they'll have to be, to get through a tight Congress. So to the extent any are bad, they should be less bad than people fear."
He says markets move on surprises, and his prediction is that "next year's political surprise should be the new president not being a legislative disaster".