US election: Economy could face standstill as uncertainty reigns

The outcome of the US election is not known yet, but once again Donald Trump has confounded the pollsters by winning key swing states and repelling the predicted Blue wave.

Joe Biden could still become president, but Democrat hopes of winning the Senate are fading. That means we are looking at a divided Congress and a continuation of the gridlock which has prevented the latest fiscal package from passing in recent months to support the Covid-stricken economy.

Markets, which had begun to factor in a Democrat sweep and a significant stimulus bill, are now reining in their growth expectations. Estimates had suggested this could have been worth an extra 1 percentage point of growth in the US next year.

There is now the prospect of a continuation of the status quo, with a Trump presidency and divided Congress. This is an outcome which would see less stimulus and the re-ignition of the trade wars, factors which would limit growth.

In the meantime, there could be a legal challenge from either side, which could mean we have no clear picture for days as we wait for the Supreme court to opine. Such uncertainty if prolonged would put decisions on hold and bring parts of the economy to a standstill.

For now, no clear result is probably the worst possible outcome from an economic perspective as uncertainty increases and stimulus hopes fade.  

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.