Research analysts at BMI, a Fitch Solutions company, have projected that Donald Trump’s presidency would keep Nigerian inflation higher for longer and further limit political space for implementing essential fiscal reforms.
Their projection, in a report titled ‘Sub-Saharan Africa Monthly Outlook’ seen by THE WHISTLER, noted that a potential Trump presidency would lead to a stronger US dollar, fueling imported inflation in EM like Nigeria.
“We expect that a potential Trump presidency would lead to a stronger US dollar, fueling imported inflation in EM’s like Nigeria. This would keep Nigerian inflation higher for longer and further limit political space for implementing essential fiscal reforms,” they said.
The analysts noted that a second Trump administration would likely use US financial aid to Nigeria as leverage to curb China’s influence in the country.
They said Nigeria’s reliance on US aid makes it likely to accede to US demands, despite drawbacks from reduced Chinese engagement.
A Portfolio Manager Daniel Graña at Janus Henderson Investors in a report on what a second Trump administration could mean for emerging markets notes that the most assertive of Donald Trump’s economic proposals could range from being unhelpful to harmful for emerging markets (EMs).
He noted that of all the elections packed into 2024, the U.S. presidential race is likely the one most consequential for emerging markets (EM).
“The more insular policies suggested by former President Donald Trump would likely mark a further step away from the globalization trend that has greatly benefited EMs.
“With the odds of a Trump victory even (at the time of writing), investors with EM exposure should consider how his approach to trade and geopolitics could impact the asset class,” he said.
Graña said higher tariffs on the part of a U.S. administration would mark a direct hit on EM exports.
He noted that most emerging countries rely to varying degrees on exports to the large U.S. end market, adding that while steps have been taken within EMs for consumption to comprise a greater portion of economic growth, flagging domestic demand has stalled many of these efforts.
“It remains to be seen whether the most aggressive of Trump’s proposals are merely a negotiating tactic. Any steps to limit trade between the U.S. and EMs would have varying effects depending upon the industry and source country. Some export demand – e.g., semiconductors – is price inelastic.
“Consequently, export volumes could remain stable even if tariffs push prices higher. Lower-value and commoditized EM exports, however, could lose market share to domestic alternatives should tariffs reach punitive levels. In nearly all instances, higher tariffs inhibit global growth and tend to be inflationary,” he said.
He said some of Trump’s proposed initiatives are aimed at protecting favored domestic industries; others are driven by geopolitical considerations such as reducing exposure to China.
He added that the upshot is that potential beneficiaries include both developed market manufacturers and select EM countries. Chief among the latter are Vietnam, India, and Mexico.