Trump or Clinton—Why the next US president could upset global growth

Forget the slowdown in China, the Brexit vote and global financial volatility, Moody's said on Wednesday, the "most immediate" risk to the global economic outlook is associated with the U.S. presidential election in November.

In the credit ratings agency's latest global macro outlook report for 2016-2016, published on Wednesday, Moody's analysts said that next inhabitant of the White House - be it Republican candidate Donald Trump or Democrat Hillary Clinton - could upset the global growth trajectory.

"There are a number of downside risks to the global economic outlook, the most immediate being associated with the US presidential election in November," Moody's analysts led by Madhavi Bokil said in the note.

"A change in U.S. policy stance that contributes to a weakening of the current global trade and security architecture could have a detrimental impact on global confidence and growth, and would prompt us to revise our forecasts," the report noted.

Moody's predicts G-20 advanced economies to grow at 1.6 percent for 2016 and 1.9 percent for 2017, compared to 1.9 percent in 2015. It has revised its gross domestic product (GDP) growth estimate for the U.S. down to 1.7 percent, from 2.0 percent, for 2016, to reflect the lower advanced estimates of second quarter growth, it said.

The presidential election comes at a time of economic uncertainty for the U.S. with Trump and Clinton diverging markedly on their economic plans for the country. Both candidates have been ambivalent towards international trade amid rising public anger over job creation and prospects in the U.S., however.

Democrat Hillary Clinton has promised a "new approach" to trade deals, saying she now opposed the Trans-Pacific Partnership (TPP, a deal encompassing the U.S. and 11 other nations around the Pacific rim) as it was "not in the best interests" of American workers.

Republican Trump has been more vociferous, indicating that if he became president he would overhaul the country's trade policy and row back the U.S.' involvement in global trade deals, as well as dramatically restricting immigration. "Americanism, not globalism, will be our credo," he has said.

While not naming either candidate directly, Moody's said that the "political and geopolitical risks of a rise in nationalist and protectionist pressures" were among the downside risks to its baseline outlook.

"The most immediate risk in this context is an outcome in the upcoming U.S. presidential elections that ushers in an administration that would renegotiate global trade pacts and security alliances. We believe that such a development would harm confidence and global growth."

The risks to the global growth outlook were not solely related to the potential upheaval in U.S. politics come November. Moody's said that political contagion from the U.K.'s decision to leave the European Union also represented "the greatest risk to otherwise muted global impact from Brexit."

Moody's baseline real GDP growth forecast for the U.K. is 1.5 percent in 2016 and 1.2 percent in 2017. Its euro area forecast was maintained at 1.5 percent and 1.3 percent for 2016 and 2017, respectively.

While Moody's recognized the potential for the EU to fragment further "with global consequences,"in Asia, it said geopolitical risks, especially from a potential diplomatic or military flare-up over the sovereignty over the South China sea, or renewed tensions in the Korean peninsula "could have a regional impact in Asia, as well as globally," the analysts warned.

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