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A day after the U.S. election, which appears to have resulted in a (likely)clean sweep victory for Donald Trump, marks a pivotal moment for the global economy, with implications for geopolitics, globalisation, and financial markets. As the dust settles, analysts are grappling with the potential consequences of a second Trump administration, one that may be more radical and transformative than the first.

At the heart of the discussion lies the anticipation of a significant shift in U.S. policy, driven by the appointment of individuals with bold agendas to key positions of power. This new landscape is expected to be characterised by increased government borrowing, the implementation of tariffs, and a potential global recession by mid-year. The bond market, a crucial barometer of economic sentiment, is already reacting to these expectations, with yields rising in the short term.

However, this initial surge in yields is likely to be followed by a deflationary scare, as the weight of increased borrowing and the spectre of a recession take hold. In response, analysts predict a significant policy intervention, potentially leading to a resurgence of inflation by 2026. This roller coaster of economic events is set to test the resilience of the global financial system, forcing investors and policymakers alike to navigate uncharted waters.

10 Critical Themes Shaping the Next Decade‍

Looking back over the past decade, the global economy has been shaped by a recurring pattern of governments borrowing more than households have saved, necessitating the use of quantitative easing (QE) to bridge the gap. The election outcome is expected to accelerate the trends identified in recent "10 themes" analysis, compressing what might have been a five-year trajectory into a mere 15 months.

For Europe, the implications are profound, with increased defence spending likely to be funded through a return to QE, potentially exacerbating regional disparities. In Asia, the focus may shift from economic growth to geopolitical manoeuvring, as China seeks to fill the power vacuum left by a more inward-looking United States. Australia and New Zealand, long caught between their economic ties to China and their security relationship with the U.S., may face difficult choices in this new era.

On the domestic front, the discussion touches on the potential for an "Anglo property reset," a process that may unfold in stages. Initially, there is a fear of property price deflation, as rising yields and economic uncertainty take their toll. However, this may be followed by a period of inflation, as policymakers seek to shore up asset prices and stimulate growth. Ultimately, the hope is that productivity enhancements will restore affordability and lay the foundation for a more sustainable economic model.

Catch up on themes

1 & 2: China’s Minsky Moment and Asia’s broken model

3 & 4: QE Addiction and the Non-Bank Credit Boom

5 & 6: The Future Ain't What It Used To Be and Geopolitics

7 & 8: Japan & The Eurozone

9 & 10: The Anglo Sazon Property Reset and Productivity

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Looking Forward 

As the world comes to terms with the implications of Trump's victory, one thing is clear: the coming months and years will be marked by significant challenges and potential volatility. Investors and policymakers will need to remain vigilant, monitoring key indicators such as U.S. 10-year Treasury yields and inflation expectations for signs of how the situation is unfolding. While the short-term outlook may be uncertain, the hope remains that this turning point will ultimately lead to a more balanced, productive, and equitable global economy.

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