Source : Flickr/Anthony Kernich
While we will need to wait a little bit longer to understand the impact of Trump administration, one of the leading economist in Australia has outlined potential impact of the policies can have for Australia. However, he also said that the president’s inability to completely force his policies could be proven vital for the country’s economy.
Queensland Investment Corporation chief economist Matthew Peter said at an event earlier last week that if US President Donald Trump manages to implement his policies completely, it would turn Australia to a banana republic.
He said, “We’ve done a fair bit of modelling on this, but we don’t know exactly what he’s going to do.”
“Anything around that sort of measure, which was retaliated by China and Mexico, would be pretty damaging.”
“In our simulation, we find that would reduce growth in the US over a four-year period by two percentage points.”
“For the economy, that’s pretty bad stuff.”
“Inflation would probably go through the roof because of the higher tariffs and … they would probably have to raise interest rates, which would raise the US dollar and worsen the situation.”
“Australia is not immune, obviously, because even though it doesn’t have very strong trade links anymore in terms of merchandise trade with the US – it’s dominated by China – what we find there is we get about a 1 per cent fall in GDP over four years.”
“That’s not as bad as China and the US because the RBA is forced to cut rates to half a per cent, the dollar falls to about 60¢ and they’re strong pushing effects for the Australian economy and that enables us to see through some of the worst parts of the trade shock.”
“But, nonetheless, you’d expect the unemployment rate to hit something like 7 per cent in that type of scenario, so it would be pretty bad news for us.”
“We’d move from this safe-haven type economy to, dare I say it, a banana republic.”
“So that’s the horror story, but I don’t think that’s going to happen. There’s not going to be that type of shock.”
“With the constraints we think Trump is going to face in terms of implementing any of this grandiose plan, we think it’s going to be a little bit of a fizz.”