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EPISODE TRANSCRIPT:

0:00:01

Alix McCabe: They go together like peanut butter and jelly, ice cream and apple pie. Or as far as Gump says, peas and carrots.

 

00:00:07

Clip 1: I am not a gloom and doom person about the American economy.

 

 

00:00:11

Clip 2: Next month, America will achieve the longest period of economic growth in our entire history.

 

 

00:00:18

Clip 3: This is an extraordinary period for America's economy.

 

 

00:00:21

Clip 4: I just finished a meeting with my economic team about the current state of our economy.

 

00:00:25

Alix McCabe: Yes, I am talking about politics and the economy, whether it's inflation.

 

00:00:29

Clip 5: For the six month in a row, inflation has come down.

 

00:00:32

Alix McCabe: Recession.

 

00:00:33

Clip 6: I don't see a recession. The world is in a recession right now.

 

00:00:37

Alix McCabe: Employment.

 

00:00:38

Clip 7: I'm happy to report that our economy has created over 300, 000 new jobs.

 

00:00:43

Alix McCabe: Or everyone's favorite, taxes.

 

00:00:45

Clip 8: We will cut taxes for everyday hardworking Americans.

 

00:00:51

Alix McCabe: The economy is always top of mind during election years, but how do changes in the Oval Office actually affect the wider business world?

 

00:00:58

Clip 9: Please raise your right hand and repeat after me.

 

00:01:01

Alix McCabe: I, Alix McCabe, do solemnly swear to faithfully tackle that question on.

 

00:01:06

Audience: Wheel of Risk.

 

00:01:09

Alix McCabe: Welcome to Wheel of Risk, proudly presented by Allianz Trade. I'm your Host, Alix McCabe. On every episode, we spin the wheel to choose a topic and then provide expert insights and actionable advice to help you keep your business solvent secure and well ahead of the competition. Today I am really excited to welcome a special guest, part of our Allianz family from the other side of the pond, Ana Boata is the Head of Economic Research at Allianz Trade. She's based in Paris, France. Ana, welcome to Wheel of Risk, or maybe I should say bienvenue .

 

00:01:39

Ana Boata: Thank you, Alix. Thank you so much for having me.

 

00:01:42

Alix McCabe: How's my French accent? Has it faded?

 

00:01:44

Ana Boata: Very good. Didn't change.

 

00:01:46

Alix McCabe: Thank you. Thank you.

 

00:01:47

Ana Boata: Even improved, I could say.

 

00:01:48

Alix McCabe: Maybe. Maybe. So Ana, before I ask you to do the important thing, which is give the wheel a spin, I'm sure our audience would love to hear a little bit about you. So could you tell us a bit about your roles and responsibilities?

 

00:02:03

Ana Boata: Yes, sure. So I'm the Head of Macroeconomic and Corporate Research, which is a team of 11 people based in Europe but with the global outreach. We look into country risk, sector risk. We do that for more than 200 countries, of course with the focus on the major economy. So we quite have a large scope, I would say; monitoring, forecasting, building scenarios, and basically helping businesses to navigate uncertainty and help them actually make decisions based on the current and upcoming uncertainties.

 

00:02:36

Alix McCabe: How long have you been with Allianz?

 

00:02:38

Ana Boata: It's quite a long time now, I would say. Since the end of 2012.

 

00:02:42

Alix McCabe: That's when I joined.

 

00:02:44

Ana Boata: Yes. And we grew with Allianz Trade, right? So I think it's-

 

00:02:48

Alix McCabe:  We did. We did.

 

00:02:48

Ana Boata: ... Interesting to see the evolution of the job because of course, back in 2012 there was still a crisis, not the one that we have today. It was very specific, years on crisis. And at the time I was an Economist in charge of Europe, and with time I developed into other zones of focus, including the U.S. And now I have a global outreach, and quite a challenging, but also very interesting position.

 

00:03:13

Alix McCabe: I would agree. And you are certainly more than qualified to give the wheel a spin, so why don't you try your luck?

 

00:03:20

Ana Boata: Yeah, let's give it a try. So let me.

 

00:03:29

Alix McCabe: I think the fact that you're not American is actually perfect for this because you landed on the impact of change, a look at the relationship between elections and the economy.

 

00:03:38

Ana Boata: Yeah, I would say it's a good topic, especially in 2024 because it's a very crowded political year on both sides of the Atlantic. So clearly that creates a lot of uncertainty and potential change in the coming months.

 

00:03:55

Alix McCabe: Absolutely. So as the politicians say, let's roll up our sleeves, put partisanship aside and get to work.

 

Regardless of who wins in any presidential election, inauguration day is always a big deal. It's when an incoming president takes the reign, so to speak, and officially becomes America's commander in chief, chief diplomat, chief executive and chief economic caretaker. President's policies can greatly affect gross domestic product, which is one of the main measures of economic activity; but it's worth pointing out that GDP can also be affected by circumstances beyond a president's control. FDR, for example, saw the highest average annual GDP growth ever, which was over 10%, due in part to higher government spending on World War II. So Ana, for some early bonus points. Are there any other historical examples worth mentioning?

 

00:04:48

Ana Boata: Yeah, that's clearly something that economists want to look at. Of course, the past sometimes can tell you patterns of the future. And if we think about the risks, we can go back to the '70s. There was a year or a presidency that was marked by relatively bad, I would say, policymaking in the U.S. Inflation, unemployment increased sharply. GDP growth declined, became also very volatile. So I think, yeah, of course that was partly due to the very strong increase in government spending. And that of course contributed to a very strong inflation, widening of the U.S. current account deficits. And of course eventually leading to the collapse of the Gold Exchange Standard. There were policies that were introduced in the '70s by Nixon, Ford, Carter Administrations to combat that inflation, but they proved to be actually ineffective, maybe even counterproductive.

 

00:05:38

Alix McCabe: So what about the impact of more recent presidents? So people talk about Reaganomics, for example, and Clinton presided over a period of pretty strong economic growth, right, Ana?

 

00:05:48

Ana Boata: Yeah, Reagan's policy was mainly focused on deregulation, lower taxation. He also implemented large tax cuts contributing to widen the fiscal deficit, pushing up interest rates, but then there was this recession in the early '80s. Now of course, Clinton on the other side was more prudent with very small fiscal deficits, even surpluses recorded in some of the years; and clearly that has solidified the U.S. economic dominance over the other nations. And this was achieved through a combination of tax increases on high income earners and some spending cuts. Now, of course, not everything was perfect either because some can argue that it created inequality, but also financial deregulation.

 

00:06:31

Alix McCabe: So not all positive?

 

00:06:32

Ana Boata: No. No.

 

00:06:33

Alix McCabe: Okay. How do election cycles themselves typically affect the economy? I know for example, there's a metric called EPU, which is Economic Policy Uncertainty. What does that tell us?

 

00:06:45

Ana Boata: This metric has developed over the past years, and it's today recognized as the top metric in terms of not only measuring uncertainty, but measuring uncertainty's impact on economic growth. There were several papers that were done on that. And one of them, for example that I can cite, it's one of the NBRs. They looked into the patterns of Economic Policy Uncertainty, so this EPU index, around national elections in 23 countries; and they showed that there is clearly a tendency of uncertainty to rise in the months leading to the elections. And more specifically, as we go closer to the election, this EPU, this uncertainty is even higher, 13% higher in the months prior to the election than in other months.

 

So clearly the election cycle creates a wait and see attitudes, especially from companies in terms of investment, because of course every time there's an election we could hear some fiscal changes. So clearly that could delay some of this decisions, investment or even consumption patterns or in terms of major purchases from households. Now, if we go back to the 2016 presidential elections in the U. S, we could see indeed that investment growth was low; but it was also partly due to the fact that if we remember in 2016 there was a trust in global economic growth, but not only from the US but also China and Europe at that time.

 

00:08:15

Alix McCabe: Generally speaking, what sectors of the economy are more sensitive to government policies and how do they behave during election periods?

 

00:08:23

Ana Boata: I would say that in general and also research papers that have been done on the matter show that industries that are sensitive to government policies are mostly like in healthcare, energy, finance. It might experience actually from what we have seen in the past cycles some more significant fluctuations of investments during election peers. And we might even have delayed decisions in terms of mergers and acquisitions during election periods.

 

00:08:50

Alix McCabe: Okay. So what about the ordinary voter? Do they get a little bit jittery during the election cycle?

 

00:08:58

Ana Boata: It all depends, I think, on what are the electoral pledges, because if one of the main pledges would be taxational households, it could bring some personal impact of course. But if we look at research, we see that spending patterns can be also influenced by electoral cycles through lower confidence. And of course when a household is less confident, he tends to spend less and save more, and therefore we would see a macroeconomic impact. Now of course, it also depends on the electoral campaign itself, right? There are cases where the government in place implements some policies that would actually give some purchasing power to the electorate; but it's interesting to see that some of the studies, even studies conducted by the IMF, do point out the fact that primary deficits tend to rise during election years. And it's not only about campaigns, but it's also about fiscal measures that might be implemented to support the popularity of some of the governments, then therefore win some votes.

 

00:09:59

Alix McCabe: So why do you think that the economy is always such a headline grabbing topic?

 

00:10:05

Ana Boata: Because it's interesting.

 

00:10:06

Alix McCabe: Yeah, for sure. Because it impacts all of us.

 

00:10:09

Ana Boata: Exactly, exactly. And I think people understood since the great financial crisis that the economy means a lot in terms of patterns of unemployment rates, in terms of mobility, in terms of wage growth, and of course in terms of wealth effects, right? Because we do know that whenever the economy doesn't go well, financial markets don't go well either. And in the case of the US, wealth effects have been a major contributor to consumer spending in 2023 just because they were positive. If we think about the housing market, for example, it was relatively resilient. If we think about the equity market, it was rising. So of course that gave the confidence that the consumer needed to actually consume and not only from disposable income; but also from excess savings after the pandemic, which is something that was not the case in Europe.

 

00:11:05

Alix McCabe: So let's move from the general to the here and now, and talk about the economic picture that the next U.S. president will be actually dealing with. What indicators have you been watching most closely over the past 12 months?

 

00:11:18

Ana Boata: Well, I would say that it's not every time that the next U.S. president gets to have such a resilient U.S. economy. That's the good news. Growth is probably going to post 2. 5% in 2024 after 2. 5% in 2023.

 

If we think about the unemployment rate, which is clearly very low and probably still stay at around 3. 8% even in 2025. So still a very resilient labor market, relatively strong wage growth. It's not the worrying picture. Even if you hear some of the worries of some of the U.S. consumers, more than 10% still expect the recession. And when you look at the numbers, you're like, "Well, clearly you don't know what a recession looks like, so you should come over to Europe."

 

00:12:07

Alix McCabe: So you touched on it a little bit, but how would you characterize the overall state of the economy that the next president will be confronted with?

 

00:12:15

Ana Boata: Well, I think it's good news that we have this resilient U.S. economy, but I do believe that we don't need to be overly confident either because whoever wins the White House in November will be confronted to a changing economy. If we look at, for example, productivity, we could say that there's good news there because it has dramatically improved over the past two years. And actually since COVID, we saw almost 3% growth in the U.S. cumulatively, whereas in Europe we saw a fall. And it doesn't only come from participation rate and people and output, but it also comes from technological progress. And I think AI, for example, will have a positive impact in the U.S. more than in other places, especially much more than in Europe.

 

00:13:03

Alix McCabe: Interesting.

 

00:13:04

Ana Boata: So I think that's interesting. It's still early stage, so we don't have a precise estimate, but if we think about what the internet revolution has created in terms of productivity gains, we were actually at 1%. So if we want to be on the cautious side, I think it's fair to believe that the U.S. economy will gain 0. 7, 0. 8 points every year thanks to AI. It's even fair to believe that we might end up close to 3%. So that's a critical moment in time for the next U.S. presidency because a lot will play out between AI productivity gains, between demographic changes and impact, and then of course climate. And clearly that could have some impacts in the next years or so if we are too late in the game, I would say.

 

00:13:49

Alix McCabe: Yeah, it's a pretty critical time on a lot of fronts. It's a very interesting time for an election.

 

00:13:54

Ana Boata: Yeah, clearly.

 

00:13:56

Alix McCabe: So now I would love to get your prediction on who will win the election. Just kidding. I don't want that.

 

00:14:02

Ana Boata: I don't know actually, and I don't want to do bets because usually I'm bad with bets.

 

00:14:08

Alix McCabe: I know. I always say that our economists have a crystal ball, so I always ask for inside information. I never really quite get it. But what I do want your prediction on is not who will win, but just the impact to economy, trade, and other fiscal issues dependent on who does win, right? So first, what would you expect from a second Trump Presidency?

 

00:14:31

Ana Boata: Well, if we analyze the first Trump Presidency, we can see that probably 50 to 60% of what has been pledged has been actually implemented and for several reasons, but I would expect to see a more pragmatic policy approach. There are some, of course, pledges that raise questions in terms of the relationship between the U.S. and China. Of course, among the most prominent pledges are the plans to increase the U.S. import tariffs to 10% or 60% for China. Of course, that could create a higher cost of imports into the U.S. It will depend on the dollar of course. If the dollar continues to be so strong as it has been over the past years, it might compensate partly, but clearly that could create some supply chain disruptions besides the increase in import costs and therefore inflation. So we do expect some tariff hikes just because it's one of his signatures, but we don't expect them to be so aggressive.

 

And of course, the political landscape, it's not what was the last time. So he might face also opposition from fellow Republicans within the party; but also, let's not forget, he tends to still listen to the businesses and stay pragmatic. Now, in terms of Fiscal Policy, probably he will play it cautiously. It's one of the pledges as well today to be more ambitious when it comes to additional tax cuts for households or for businesses. But we do believe that there will be a status quo for businesses, so no further tax cuts and some tax cuts for households and an extension of the 2017 tax cuts. Why? Just because he needs to fund them somehow. And those that we do take into our scenario would be fundable with the increased tariff duties, right? This increase of the tariffs from 2. 5 to 4% because everything is about the credibility of Fiscal Policy if you want to keep your financing cost as a state in check.

 

 

00:16:36

Alix McCabe: Wait a minute. There are no presidents present, so that music can only mean one thing. It is time for a Presidential Pop Quiz. Okay, so here's the plan. I am going to name a particular economic event or period, and then I want you to tell me who was president during that time. Oh, but hang on a second. I'm getting a word from my producer.

 

00:16:59

Producer Reaon: Hey, Alix. So I may have neglected to mention this, but we're going to flip the script on this one, and Ana's going to ask you to name that president.

 

00:17:08

Alix McCabe: Well, I wish I had taken better notes or paid more attention in history class, but let's do this. I'm game for it. Let's go, Ana.

 

00:17:15

Ana Boata: Well, good luck, Alix. So question number one, who was president during the Mash Recession?

 

00:17:25

Alix McCabe: Okay.

 

00:17:25

Ana Boata: Do you want a hint?

 

00:17:26

Alix McCabe: Yeah, I need one.

 

00:17:28

Ana Boata: That was happening in the '50s, '53, '54.

 

00:17:32

Alix McCabe: Eisenhower?

 

00:17:33

Ana Boata: Yeah, that's correct.

 

00:17:35

Alix McCabe: It is?

 

00:17:35

Ana Boata: Well done. Yes, yes. Let me tell you a bit more. The wind down of the Korean War caused government spending to decline dramatically, and actually this lowered the fiscal deficit from 1.7% of GDP in '53 to 0. 3 a year later. You could understand now why it's called Mash Recession. And on top of that, the Fed tightened Monetary Policy in '53. So very bad, bad policy mix.

 

00:18:04

Alix McCabe: I have to tell you, I did not know that. But when you gave me the hint that it was in the sort of '53, '54, that's where I got Eisenhower from. So not because I knew all of that other information, but thank you for telling me that.

 

00:18:18

Ana Boata: So question number two, who was president during the dot-com crash?

 

00:18:24

Alix McCabe: Okay, I think I actually know this. Was it Clinton?

 

00:18:29

Ana Boata: Yes, you're right.

 

00:18:31

Alix McCabe: Okay. I didn't know because the crash was when? Crash was in the early 2000s.

 

00:18:36

Ana Boata: Actually, the peak in prices was in March 2000s, and by the end of 2000s, the NASDAQ-100 Index actually lost more than half of its peak value. So I think you're happy not to have been invested at the time in the NASDAQ.

 

00:18:52

Alix McCabe: Yeah, for sure.

 

00:18:54

Ana Boata: Now it's time for the third question. Who was president during the collapse of the Bretton Woods System, which tied the US dollar to the price of gold?

 

00:19:04

Alix McCabe: Okay, so this happened in the '70s, so wasn't-

 

00:19:08

Ana Boata: Yes.

 

00:19:08

Alix McCabe: : ... LBJ. It would've been... I'm either LBJ or Nixon. You tell me.

 

00:19:17

Ana Boata: I would say that you should choose.

 

00:19:20

Alix McCabe: Okay. LBJ.

 

00:19:21

Ana Boata: No.

 

00:19:21

Alix McCabe: No?

 

00:19:23

Ana Boata: Wrong. Nixon.

 

00:19:26

Alix McCabe: Okay.

 

00:19:27

Ana Boata: Yeah, actually, the Bretton Woods System collapsed primarily due to the mountain pressure caused by U.S. inflation and balance of payment deficits. And it undermined the confidence into the overall system. And of course, it led to it being abandoned in '71.

 

00:19:44

Alix McCabe: So that was the one I should have known, but did not know. Okay.

 

00:19:47

Ana Boata: Yeah.

 

00:19:47

Alix McCabe: My confidence is shaken.

 

00:19:50

Ana Boata: This is where the history teacher would be not very happy, but it's okay. We still have one more to go.

 

00:19:58

Alix McCabe: Okay.

 

00:19:58

Ana Boata: So question number four, who was president during Black Monday? You know the stock market collapsed?

 

00:20:04

Alix McCabe: Yeah, yeah, the crash.

 

00:20:05

Ana Boata: In '87.

 

00:20:07

Alix McCabe: Ronald Reagan.

 

00:20:08

Ana Boata: Yes. Well done.

 

00:20:11

Alix McCabe: I said it with confidence, so, okay, good.

 

00:20:13

Ana Boata: So yeah, it was actually a correction of nearly 10% the week prior to the Black Monday. Again, I think we are happy not to have been invested during those times.

 

00:20:25

Alix McCabe: Yeah, absolutely.

 

00:20:27

Ana Boata: So that's it, actually. Thanks for playing the game. You did a great, great job.

 

00:20:32

Alix McCabe: One wrong isn't so bad.

 

00:20:34

Ana Boata: Nope, for sure.

 

00:20:35

Alix McCabe: I guess I did pay attention.

 

00:20:37

Ana Boata: You did. You did. Of course.

 

00:20:38

Alix McCabe:  Way to keep me on my toes. That was super fun. I would love to give you though, the last word before we wrap things up. So any final thoughts to leave with our listeners about the relationship between elections and the economy?

 

00:20:50

Ana Boata: I think the takeaway from our conversation is clearly that uncertainty will stay until the elections. So we need to pay attention, follow electoral pledges to understand potential impacts, prepare for those. More importantly, of course, go vote. And clearly to understand that it might be a wait and see year where not everything will play out as we would expect to by fundamentals, just because we have this uncertainty around. And things will be a bit slow. Follow us on our website or on social media just to see what we think of the results of the elections and how do we assess that. And of course, don't forget, it's always cyclical, right? So whenever it goes down, it will also go up at some point.

 

00:21:39

Alix McCabe: Good insights.

 

00:21:40

Ana Boata: Thank you, Alix.

 

00:21:41

Alix McCabe: That music we're hearing means we are out of time for today. It has been phenomenal catching up with you, and thank you so much for being part of the podcast. Or should I say merci beacoup?

 

00:21:52

Ana Boata: Thank you, Alix. Merci aussi .

 

00:21:58

Alix McCabe: My guest today has been Ana Boata, the Head of Economic Research at Allianz Trade. I'm Alix McCabe and this is Wheel of Risk. Thanks for listening. To learn more about how a partnership with Allianz Trade can benefit your organization, please visit Allianz-trade.US/podcast. That's A- L- L- I- A- N- Z- trade.us/ podcast. You can also follow Ana and myself on LinkedIn, we'd love that. Talk to you soon.