“A Trump victory in particular could prolong and perhaps exacerbate policy uncertainty and deliver a shock (though perhaps short-lived) to financial markets,” writes a team led by Chief Economist Willem Buiter. “Tightening financial conditions and further rises in uncertainty could trigger a significant slowdown in U.S., but also global growth.”
Buiter, for his part, has been warning of a global recession for nearly a year, though he previously saw a deceleration in Chinese growth as the proximate cause.
In what they deem to be a “conservative” estimate, Citi’s team suggests that a Trump victory would cause a one-standard deviation tightening in U.S. financial conditions and pickup in global policy uncertainty, which would adversely affect consumption and investment in both the U.S. and the rest of the world:
“A Trump victory could lower global GDP growth by around 0.7-0.8 percentage points, according to our estimates, pushing GDP growth easily below our benchmark for a global recession of 2 percent global growth at market exchange rates in 2016/17,” writes Buiter.