Fitch changes its mind: Trump isn't a threat to the world economy after all

Key Points
  • In February, Fitch warned that Trump posed a danger to global economic stability.
  • In April, the ratings agency says the president's pro-growth agenda would push GDP more than expected.
  • Concerns linger over protectionism and debt, but the report was a major change from the previous warnings.
Trump still has potential to boost the economy: SocGen

Just two months ago, Fitch Ratings viewed President Donald Trump as a threat to economic stability — not only in the United States, but for the world.

Now, things appear to have changed.

One of the three major ratings services issued a mostly glowing report Tuesday about the state of domestic finances. Fitch, in a far cry from its dire warnings in February, both reaffirmed the sterling AAA credit rating for the U.S. and raised its outlook for gross domestic product growth.

The firm now expects the U.S. to grow at a 2.3 percent rate in 2017 and 2.6 percent in 2018 — not exactly breakout just yet, but a good deal better than the 1.6 percent average GDP rate under President Barack Obama.

Fitch attributed its outlook in part to the pro-growth Trump agenda.

"The new administration's focus on deregulation and tax cuts has spurred higher business
confidence and would be positive for growth if carried through," Fitch analyst Charles Seville and others said in a report for clients. "Tax cuts are unlikely to generate a lasting and substantial boost to growth, in Fitch's view."

President Donald Trump speaks during a strategic and policy discussion with CEOs in the State Department Library in the Eisenhower Executive Office Building (EEOB) on April 11, 2017 in Washington, DC.
Getty Images

Despite some lingering reservations, it was still quite a change in tone compared with a warning Fitch sent out in early February.

Back then, the agency declared that the nascent Trump administration "presents a risk to international economic conditions and global sovereign credit fundamentals."

The new president had hurt "policy predictability" while "established international communication channels and relationship norms" had been "set aside" creating the threat of "sudden unanticipated changes in U.S. policies with potential global implications."

All of the disruptions could pose credit-downgrade threats to U.S. trading partners, though Fitch did concede then that "a lot can change."

The agency was worried primarily that Trump would establish a protectionist agenda with tariffs that would start an international trade war. However, the president has softened a lot of that rhetoric since, and even last week met with his Chinese counterpart, Xi Jinping, in what had the air of a mostly cordial gathering of world leaders.

Fitch did on Tuesday issue some cautionary warnings about trade, and again pointed out that U.S. public debt was reaching dangerous levels.

"Increased trade protectionism and curbs on immigration would be negative for growth over the
medium-term," Seville added.

Seville said he does not anticipate a future downgrade of U.S. debt.

Fitch was not alone in its warnings about the Trump agenda. During the campaign, Mark Zandi, chief economist at Moody's Analytics, warned that the new president's plans as outlined would lead to a substantial recession.