„A trade war would hit Europe particularly hard“
Mr. Robertsen, much of what Donald Trump is planning could increase inflation in the US. Could this lead to an abrupt end of interest rate cuts or even a rate hike in 2025?
It is hard to believe that there will be sharp rate cuts by the Fed. Higher tariffs, more de-regulation and his fiscal policy will all be inflationary. And this at a time where the US economy is in a quite healthy condition. I don´t see any signs for a recession. I believe the Fed will cut rates to a neutral level and then wait which effect Trump´s policy will have on inflation, economic growth and the labour market.
Where do you see the neutral interest rate?
I would say the Fed Funds rate range at end of cycle will be around 3.5 to 3.75%.
Trump has announced a restrictive immigration policy. What consequences do you expect for the US labor market, which the Fed pays particular attention to due to its dual mandate?
There will be a fairly significant effort to expel migrants suspected of being criminals. But I don´t believe that the Trump administration will deport millions of migrants as announced. Therefore, the effect on the labor market should not be that severe.
Do you think Trump will implement the punitive tariffs as announced or could they ultimately be lower?
Trump will increase tariffs, but probably not as much as in the most aggressive scenarios that are circulating.
ECB President Christine Lagarde thinks Trump is willing to negotiate on tariffs. Do you think the same?
Absolutely. We learned from his first term of office that whenever he made high demands or threats, he wanted to achieve a concession. With the announced tariffs against Mexico, he wants to bring the country to stricter border controls. He would like Europe to spend 3% of GDP on military spending and purchase more American gas.
China can respond with a major fiscal stimulus, which they have held back in their pocket for some time. Europe can't do that.
What would be the consequences of a trade war if China or the EU were to respond to US tariffs with counter-tariffs?
An escalation of the conflict is not good for anyone, not even for the USA. I believe that a trade war would hit Europe particularly hard. China can respond with a major fiscal stimulus, which they have held back in their pocket for some time. Europe can't do that. In addition, if exports to the USA collapse, China is likely to react by flooding Europe with its products. This would for example have negative consequences for car manufacturers in Europe and would also unintentionally lower inflation in the Eurozone.
Another effect of the US tariff policy is likely to be a stronger dollar compared to the euro. What consequences would this have?
The discussion about the exchange rate is interesting. The financial markets currently expect the ECB to cut its key interest rate to around 1.65% next year and the Fed to 3.75%. If this happens, the euro should be at 1.03 to 1.05. However, if the Fed has to be more restrictive than assumed due to Trump, and the ECB more expansive, the interest rate differential therefore becomes even greater, the euro will depreciate more strongly. The question then is whether the ECB will accept this or try to counteract it. If the depreciation is gradual, the ECB will probably tolerate it.
We will have snap elections in Germany and in France, the political situation is very unstable. How worried are you about the political uncertainty, especially in view of the fact that the growth prospects for Europe are not rosy at the moment anyway?
Germany and France in general are the economic and political anchors of the EU. At the moment they can´t deliver this, but the economy in other eurozone countries such as Spain is running relatively smoothly. However, the question is whether this will remain the case for longer if the situation in the two largest economies in the Eurozone remains unstable and Germany is in a recession.
What wishes do you have for the new German government in the area of economic policy?
Germany needs to invest more in its infrastructure. Above all, however, it needs an environment in which companies invest again, and private households consume more. To achieve this, Germany needs to significantly reduce its bureaucracy, for example. Sometimes I hear that this is not possible. I don't believe that. Germany was the sick man of Europe in the 1990s and reinvented itself with the Harz reforms. It needs something like that again, it just requires the political will.
A separate Brics currency is utopian.
Let's have a look at geopolitics. While global conflicts are increasing, Brics 2024 has gained new members. What role will Brics play in geopolitics in the future?
Brics brings together countries that are dissatisfied with the dominance of the USA and Europe. The majority of cross-national transactions are settled in dollars or euros. It is understandable that the Brics countries are bothered by the resulting dependence on the exchange rate. Nevertheless, a separate Brics currency is utopian. India, for example, will never abandon its stable currency in order to introduce a new non-liquid currency. I see Brics more as a platform for countries that want greater weight in geopolitics.
Should organizations such as the WTO, the World Bank or the UN be reformed so that the so-called global South has more influence there?
Yes, these organizations are extremely important for multilateralism. But they are currently paralysed by bloc formations. That is why reforms are needed that will give the global South more influence.
One of the countries that is becoming increasingly important in international politics is India. The economy there is also growing very strongly. What is your economic forecast for the coming years?
India is a bright spot in the global economy. Unlike China, it has a pleasing demographic development that benefits the economy. The government has also done a lot of things right in terms of economic policy in recent years. For example, a lot has been invested in infrastructure. In addition, India has a comparatively closed economy. It is therefore not so dependent on global trade, which is suffering from geopolitical conflicts.
You have already mentioned the demographic problems in China. How do you assess the economic prospects there?
The government has recognized that it needs larger economic stimulus packages in order to achieve its growth target. A major fiscal stimulus is likely to follow next year because of Trump. Nevertheless, the trend in China is towards slower growth in the coming years. The struggling real estate market accounts for over 20% of GDP. Booming sectors such as the automotive market only account for around 6%. The restructuring of the economy will therefore take time.
Will China be able to avert the threat of deflation?
In booming sectors such as the automotive market, there is likely to be consolidation, which has a deflationary effect. The problem could therefore become even worse. The Chinese government must succeed in boosting private consumption and demand for credit. To achieve this, consumer and corporate sentiment must improve significantly. That will be the key.
