Euro area: Any ‘Trump effect’ likely to be modest - RBS

Analysts at RBS suggest that despite rising expectations that looser fiscal policy could provide a boost to US GDP growth, they expect the impact on the Euro area to be relatively limited.

Key Quotes

“Studies show that a 1%-point growth positive growth shock in the US typically lifts Euro area GDP by approximately ¼ of a percent. But direct trade effects tend to be small (~0.1%-point impact), with the majority of the impact instead coming via indirect trade effects and confidence and financial market channels. We find it hard to envisage any substantial ‘Trump’ related boost to corporate or consumer confidence in the Euro Area.”

“At the same time, a Fed hiking cycle and stronger USD could again destabilise emerging markets, particularly if accompanied by fears of a rise in protectionism. Structural issues may also limit the Euro Area’s ability to benefit from stronger US growth. We therefore see no more than a 0.1-0.2%-point impact on Euro Area growth in future years from a fiscal policy-related boost to US growth.”