The election of Donald Trump as President of the United States could lead to chaos in markets and increased policy uncertainty that tip the world into recession, according to Citigroup Inc.
"A Trump victory in particular could prolong and perhaps exacerbate policy uncertainty and deliver a shock (though perhaps short-lived) to financial markets," writes a team led by Chief Economist Willem Buiter. "Tightening financial conditions and further rises in uncertainty could trigger a significant slowdown in U.S., but also global growth."
Buiter, for his part, has been warning of a global recession for nearly a year, though he previously saw a deceleration in Chinese growth as the proximate cause.
In what they deem to be a "conservative" estimate, Citi's team suggests that a Trump victory would cause a one-standard deviation tightening in U.S. financial conditions and pick-up in global policy uncertainty, which would adversely affect consumption and investment in both the U.S. and the rest of the world:
"A Trump victory could lower global GDP growth by around 0.7-0.8 percentage points, according to our estimates, pushing GDP growth easily below our benchmark for a global recession of 2 percent global growth at market exchange rates in 2016/17," writes Buiter.
This definition, to be sure, is an arbitrary and subjective take on what constitutes a global recession.
Citi's base case, however, is for Hillary Clinton to prevail in the presidential election. Buiter's team also sees possible tailwinds to growth coming from policy changes after the election, no matter which candidate wins.
"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)," the economist writes.