- Christophe Barraud predicts US growth will accelerate after the election.
- His forecasts consider election outcomes, Congress control, and economic impacts.
No one can predict the future with certainty. But when it comes to forecasting the economy, Christophe Barraud has a startling track record.
Bloomberg has ranked the chief economist and strategist at Market Securities Monaco the top US forecaster every year except once since 2012. In the quarterly standings, Barraud clinched the top spot again for the third quarter of 2024.
Right now, he has his sights set on the US election, with its high stakes and wide range of economic possibilities. It's a tight race with two very different candidates who would produce different policy outcomes. Perhaps the question that's even bigger than who the next president will be is how much power they will wield; no matter how small or grand they seem, policies are hard to pass without a majority in Congress.
Barraud expects US growth to accelerate once the results are in, and regardless of who gets elected, he said in an interview. This is because uncertainty has spooked growth as corporations halted big decisions around capex and hiring. Additionally, numerous adverse events, including union strikes and weather conditions like hurricanes, put a damper on things.
Overall, he says US GDP growth will run stronger than consensus forecasts. This means that 2024's expected rate of 2.6% would come in at 2.7%, and 2025's consensus of 1.8% would be closer to 2.1%.
But growth can differ depending on how Washington is sliced and diced next year. Here's how.
Barraud's election forecasts — and his most likely outcome
In scenario one, where Vice President Kamala Harris wins with a divided Congress, not much on the economic front is likely to change. Therefore, expect the status quo, he said.
In scenario two, former president Donald Trump wins, but with a divided Congress. This would limit his ability to cut taxes for corporations and households. Therefore, he will likely focus his efforts on foreign policy, meaning everything linked to trade restrictions and tariffs could be implemented sooner than expected, Barraud said. The outcome would hurt global growth. In the short term, it would be neutral on US GDP. However, over the long run, as countries retaliate, this could backfire and slow the US economy.
The third scenario is a Trump win with a Republican sweep, which Barraud believes is the most likely outcome. He expects Republicans to take the Senate; it's the House that could be a toss-up.
If Trump does gain a majority, it would enable him to implement tax cuts for corporations and households. It may also cause him to focus more on domestic rather than foreign policy. In the short term, it would have a positive impact on US economic growth, creating a GDP boost in 2025 between 2.1% and 2.3%, he said.
However, there's a bigger problem: Barraud's heavy-weight clients, which include big banks, hedge funds, and pension funds, are increasingly asking him about the trajectory of the ballooning US deficit. At the center of that concern is how big the deficit can get if Trump is elected and implements tax cuts resulting in US revenue shortfalls and how it could impact the 10-year.
For that, he has a few modeled projections. In the case of a Trump win, he expects an initial shock jump on the 10-year yield to at least 4.5% based on where yields are today, near 4.23%. If he doesn't get a majority in Congress, then longer term, the yield could move an additional 15 basis points to 4.35%, again based on where yields are today. If there's a Republican sweep, then it would be followed by a gradual move up to 5% as investors seek a higher risk premium. This would be especially the case if he cuts immigration in a healthy labor market, causing further inflation.
The 10-year yield last traded at 5% a year ago and in 2007 before then.
If Harris wins with a dividend Congress, yields could drop further from where they are, he said. This is because the market has already priced in a Republican win. So firstly, it would correct down, he added.
But what makes Barraud so sure about his predictions, even when his track record is taken into account?
His secret sauce isn't in his personal opinion or high-level perspective. When asked "why" something is expected to shift, he laughs and says it's the model's output.
Like a quant trader, Barraud's calculations are built on a three-step methodology that involves collecting the latest and greatest economic, financial, and satellite data, determining key signals based on backtests, and then merging input from additional models to challenge the projections, expose risks, and tighten output. This time, election forecasting includes monitoring multiple poll-betting markets with the highest volume of users to gauge election outcomes.