Chief economist Pierre-Olivier Gourinchas fears that the US president’s plans will in particular “reduce opportunities, complicate life for businesses and reduce their ability to hire.”
The economic policy envisaged in the United States by President-elect Donald Trump “includes inflationary risks” in all its dimensions, estimated the chief economist of the International Monetary Fund (IMF), Pierre-Olivier Gourinchas in an interview with the AFP.
The Republican candidate, who must return to the White House from Monday, plans new tax cuts, which he wants to partly finance by an increase in customs duties, from 10 to 20%, on all products entering the United States, and even up to 60% to 100% for Chinese products.
At the same time, he wants to increase deregulation measures, while lowering federal government spending.
He also plans to deport as many migrants who entered the United States illegally as possible to the border, at the risk of destabilizing certain sectors of the economy that rely largely on this workforce, such as construction or retail sales.
However, whether it is customs duties or migration policy, “these are policies which reduce possibilities, they complicate the life of businesses, reduce their capacity to hire or their access to raw materials and ultimately reduce the supply side of the economy,” underlined Mr. Gourinchas.
At the same time, “you have policies which aim to stimulate demand, if there is for example an extension of tax cuts”, but also those which could “reinforce confidence”, such as deregulations.
“If you add up all these effects, reduced supply and production, it leads to higher prices. Anything that increases demand also increases prices. So when you look at the United States, we see a risk of inflation resuming,” detailed the Fund’s chief economist.
Inflation in the United States marked time in the last quarter of 2024, with even a slight recovery, while price increases rose to 2.9% at an annual rate in December, according to the CPI index. published Wednesday.
Risk of deflation in China
-The Federal Reserve (Fed), which has lowered its rates three times in a row since September, to bring them back to a range between 4.25% and 4.50%, could pause at its next meeting, scheduled for the end of the month, and only make two additional rate cuts this year.
The IMF expects that number of cuts this year, plus two more next year.
But while the United States risks seeing inflation rise, the risks are more towards deflation in the second largest economy in the world, China, which remains faced with still weak domestic demand.
“If the situation in the real estate sector deteriorates, the central government does not do enough and the economy slows down even more, that is a risk,” pointed out Mr. Gourinchas.
“In the immediate future, we believe that the government is moving in the right direction but it can undoubtedly do more, in particular on the crisis in the real estate sector, but also to improve social shock absorbers, which would help reduce the rate of savings”.
A problem that “the Chinese economy has been facing for several years” but which Beijing must resolve if it wants to have “sustainable growth supported by domestic demand. Because it is increasingly difficult to rely on exports,” warned the Fund’s chief economist.
Questioned Thursday by a Senate committee as part of his confirmation hearing for the post of Treasury Secretary, Scott Bessent estimated that, without its exports, China would be in a recession.
Without going that far, it is certain that “the external sector contributed and helped Chinese economic growth last year and this will continue this year”.
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