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US Economic Risks Rising
US Economic Risks Rising

US Economic Risks Rising

US Economic Risks Rising

A fiscal boost to the United States is more likely in 2018 than this year, according to Goldman Sachs economists, as “the balance of risks is somewhat less positive” one month into the new year and as US President Donald Trump’s growth-boosting agenda could be offset by negative effects of restrictions on trade and immigration.
Following the election, the positive shift in sentiment among investors suggested that the probability of tax cuts and easier regulation was higher than the probability of meaningful restrictions to trade and immigration, according to the note by economist Alec Philips dated Feb. 3, Reuters reported.
However, one month into the year, the balance of risk is “somewhat less positive in our view.”
Recent difficulties that congressional Republicans have had in repealing Obamacare “does not bode well for reaching a quick agreement on tax reform or infrastructure funding,” the note said.
Republicans may find there are more hazards in undoing it than there were in creating it. Since its passage, some 20 million Americans who didn’t have insurance before now have it—and a study by the Urban Institute forecasts that if the Affordable Care Act is repealed, 30 million will lose coverage.
Donald Trump’s comments on Sunday suggesting that a replacement for Obamacare may not arrive until 2018 coincides with crowds turning out to pressure Republicans not to scrap the system too hastily.
That “reinforces our view that a fiscal boost, if it happens, is mostly a 2018 story.”
Goldman said while bipartisan cooperation looked possible on some issues following the election, the “political environment appears to be as polarized as ever, suggesting that issues that require bipartisan support may be difficult to address.”
Goldman also said Trump is likely to follow through on campaign promises on trade and immigration, “some of which could be disruptive for financial markets and the real economy.”
Tax reform will probably “take a while to enact and will probably be scaled back relative to what House Republicans and Trump have proposed,” the note said.
Goldman said it expects a fiscal expansion of around 1% of GDP, largely through tax cuts starting in 2018.

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