Citigroup economist: Trump election could spur global recession

Donald Trump winning the presidency could upend financial markets and tip the world into a global recession, according to economists at Citigroup.

Willem Buiter, the bank’s chief economist, wrote Thursday that a Trump victory would inject significant uncertainty into financial markets, which in turn could take a toll on the global economy.

{mosads}“A Trump victory in particular could prolong and perhaps exacerbate policy uncertainty and deliver a shock (though perhaps short-lived) to financial markets,” said Buiter’s team in a report, according to Bloomberg. “Tightening financial conditions and further rises in uncertainty could trigger a significant slowdown in U.S., but also global growth.”

The report went on to predict that a Trump presidency could reduce global economic growth by 0.7 or 0.8 percentage points. With Buiter already predicting tougher times for the global economy ahead, he said that would be enough to push the global economy into recession territory.

But it wouldn’t all be bad; the report also predicted that the election of either Trump, the GOP nominee, or Hillary Clinton, his Democratic counterpart, could be accompanied by some long-awaited fiscal stimulus from policymakers. Both Trump and Clinton have lamented the state of the nation’s infrastructure, leading some to believe the next president could work with Congress on boosted funding for roads and bridges.

“The elections could be followed by a major fiscal boost, perhaps as a deal is struck to increase infrastructure spending while allowing companies to repatriate foreign profits at a discounted rate (under a Clinton or Trump administration) or due to sizable tax cuts (more likely under Trump),” Buiter wrote.

Earlier this month, Buiter predicted that if Trump wins, the Federal Reserve could be forced to dramatically alter course, as it prepares to bear the brunt of his policies.

While most Fed watchers anticipate the central bank will continue its efforts to gradually raise interest rates after the election, Buiter told CNBC the Fed will likely cut rates if Trump becomes president.

The Fed would cut rates in anticipation of a trade conflict; Trump has vowed to challenge U.S. trade partners for better deals if elected. Furthermore, the real estate mogul’s commitment — which now appears to be softening — of deporting millions of illegal immigrants would also weigh on the U.S. labor force.

The only challenge there is that the Fed has almost no room to navigate. The central bank has raised interest rates only once since the recession, when the Fed slashed rates as low as possible to help boost the economy.