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NDTO News Article

Renowned Economist Discusses Global Markets During Trade Talk

As world markets rapidly change, questions loom for North Dakota’s exporters. The question on the minds of many is, what’s going on with the global economy right now?

North Dakota business leaders filled a Holiday Inn meeting room in Fargo last week in hopes of having that very question answered. Dr. Jay Bryson, a managing director and global economist with Wells Fargo Securities, was on hand to provide insight and answer questions on the dynamic global landscape.

Bryson, who has a doctorate in economics, presented developments across the world that spell out uncertainty in 2017, the first being in the U.S.

“The US economy has a lot of uncertainty right now due to policy and politics,” said Bryson.

Bryson predicts that US GDP growth will remain steady, much as it was before the election. He said that the forecast for the US economy hasn’t changed in recent months, but the probability distribution has gotten much bigger.

He predicts that growth in consumer spending will remain solid and inflation will continue to rise, causing the Federal Reserve to hike interest rates several times this year and next. President Trump’s trillion-dollar infrastructure spending plan will likely not go through as planned. Tax reform is still unclear as Trump and Treasury Secretary Steven Mnuchin have had opposite views.

With regards to trade, Bryson points to the provocative statements made by Trump as causing a degree of uncertainty. Trump has threatened to increase tariffs on Mexico and China, which as president, he has the power to do without congressional approval. He could simply point to legislation that allows the president broad discretion to change international economic policy in times of (loosely defined) war or national emergencies.

Bryson said tariff increases would mean less disposable income as we pay more for basic goods. As far as moving manufacturing back to the US, he says it’s unrealistic to believe that Americans will once again be manufacturing items that haven’t been made on a large scale in the US for years, such as clothing.

Uncertainty persists in Europe, as well. Though Bryson predicts the European Union will continue to grow by 1.5-2%, he notes there are 3 significant elections coming up in the Netherlands, France and Germany. The French election in particular could have large consequences. France’s election process is unique in that if no one person wins the majority of votes, the top two candidates compete in a second round.

“If the election were held today, there’s a high probability that Marine Le Pen would make it to the second round,” said Bryson.

Le Pen represents the far right National Front party. Most opinion polls show her losing in the second round to centrist candidates. However, there are some scenarios under which she could win in the second round, thereby becoming the next president of France.  Le Pen has been outspoken against the European Union. If she is elected, there’s a low probability that France would leave the EU, but a higher probability that she would take the country out of the Eurozone.

“If France left the Eurozone, that would be a huge shock,” said Bryson, “Brexit squared.”

Bryson also spoke on the uncertainty in China. China’s economic slowdown is actually a positive, with its economy becoming more balanced. However, China is plagued by so called “zombie companies.” Similar to a problem Japan has dealt with, China has large, indebted companies that are not hiring nor investing and are basically ‘dead’. Government banks continue to keep these nearly bankrupt companies afloat since the companies are themselves government-owned and employ around 65 million people. Bryson said that while he does not think the Chinese banks will collapse, the current amount of business debt – which accounts for the vast majority of total debt outstanding in China –is worrisome.

The trade talk ended with questions from the audience, and was followed by Bryson accepting questions on an individual basis. There were several comments immediately after the event that it was one of the best ‘State of the Global Economy’ trade talks so far.