Economy could be downhill from here

Why Trump’s economy could be downhill from here

By BEN WHITE

President Donald Trump has already hit his high-water mark on the economy and probably faces a significant slowdown heading into his reelection campaign, according to a leading economist.

“It’s probably as good as it gets,” Megan Greene, chief economist at Manulife said on the latest edition of the POLITICO Money podcast, regarding the robust second-quarter growth rate of 4.1 percent.

“I think Q2 is the peak,” she said. “We will probably decelerate and return to our potential GDP growth, or around our potential GDP growth, from here on out, which is going to be around 2 percent. We won’t go straight to 2 percent, it will take a while. But unless we fundamentally boost productivity growth or our labor force, I don’t see any other way of really boosting our potential GDP.”

Greene said Trump deserves some credit for boosting the economy through tax cuts and deregulation, but perhaps not as much as he gives himself. “We’ve had a couple of quarters of growth above 4 percent since the global financial crisis, over which Donald Trump has presided over one,” she said. “He can’t take full credit for this. On the other hand, some of the reason that we’ve got such growth is because we’ve got so much fiscal stimulus coming down the line and we do have Trump to thank for that although I’m not sure we should really be thanking him for that.”

Greene added that the Trump economy is not fundamentally different from the President Barack Obama economy, which also enjoyed several quarters of growth over 4 percent.

“It isn’t fundamentally different. The picture for productivity growth or the labor supply looks the same; none of that has changed,” she said. The difference is we’ve had a ton of fiscal stimulus come down the line."

To keep up the current pace, Greene said, Trump and Congress would have to enact yet another set of tax cuts and spending hikes. And that could cause its own problems with surging federal debt.

“It will be interesting to see what the administration does going into 2020 because most of this fiscal stimulus will peter out by then and it’s an election year,” she said. “So there is a chance that the administration will re-up on fiscal stimulus and make this deficit and debt burden problem even worse."