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- The November presidential election will bring sweeping changes to the outlook for the US economy, according to a Thursday note from Deutsche Bank.
- Depending on the outcome, the economy could benefit from a wave of more stimulus and increased government spending, or it could be stifled by congressional gridlock.
- Here are the four potential outcomes of the upcoming election and their respective economic implications, according to Deutsche Bank.
- Visit the Business Insider homepage for more stories.
With the November presidential election less than two weeks away, the economy could be on the verge of a dramatic shift.
Depending on the outcome, investors can expect everything from robust economic growth supported by another wave of fiscal stimulus and increased government spending, to a stifled economy hindered by congressional gridlock.
While the most likely outcome is a blue wave, the second most likely is a Biden presidency with a Republican-controlled Senate, Deutsche highlighted.
The polar opposites of the two most likely election outcomes could have a stark impact on the economy.
Here are the four potential outcomes of the upcoming election and their respective economic implications, according to Deutsche Bank.
1. "Blue Sweep" (60-70% probability)
"This result would provide the most fiscal stimulus to the economy in 2021. While the Biden plan does detail about $2.5tn of tax increases over the next decade, we assume these will not be implemented until the economy is on firmer footing, likely late 2021 or early 2022. Simulations of the Fed staff's model show that an additional $2tn stimulus package could significantly boost the economy next year, lifting real GDP growth by about 5 percentage points, adding 3 million jobs, and lowering the unemployment rate by nearly 2 percentage points," Deutsche Bank said.
2. "Biden win and Republican Senate" (20-25% probability)
"A Biden win and a Republican Senate – is also the most negative for 2021 growth, in our view. Fiscal stimulus is likely to be far more marginal and other key elements of the Biden agenda that could be implemented through executive orders or guidance on regulation are likely to be negative for near-term growth prospects. With control of the Senate possibly not determined until January, there could be a prolonged period of uncertainty about fiscal policy prospects following the election," Deutsche Bank said.
3. "Trump win and Republican Senate" (5-10% probability)
"In this scenario we assume that significant fiscal stimulus packages remain elusive, which results in a fiscal impulse of less than $500bn in 2021 ... On the trade front, we would expect a push towards implementing Phase 1 of the trade deal with China as well as stronger consideration of the key issues that were left out of the Phase 1 deal," Deutsche Bank said.
4. "Trump win and Democratic Senate" (0-5% probability)
"Our view is that this scenario would result in a stimulus deal roughly in line with the $2 trillion package currently being negotiated by House Speaker Pelosi and Treasury Secretary Mnuchin ... a Trump administration faced with Democrat control of the Senate and House could break from the Republican Senate's fiscal conservatism that has held back progress on recent fiscal stimulus talks. Significant infrastructure spending is one potential area of agreement for a Trump White House and Democratic Congress, though only if the President is willing to rely heavily on public funding. Another area of agreement is a hard line on foreign trade and the economic relationship with China in particular," Deutsche Bank said.
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