4 Apr 2016

Trump's remarks 'undermine US economy'

5:59 pm on 4 April 2016

Donald Trump's prediction that the US economy was on the verge of a "very massive recession" has been countered by economists who question the Republican presidential frontrunner's calculations.

Donald Trump

Donald Trump Photo: AFP

In an interview with the Washington Post published on Saturday, the billionaire businessman said a combination of high unemployment and an overvalued stock market had set the stage for another economic slump. He put real unemployment above 20 percent.

"We're not heading for a recession, massive or minor, and the unemployment rate is not 20 percent," said Harm Bandholz, chief US economist at UniCredit Research in New York.

The official unemployment rate has declined to 5 percent from a peak of 10 percent in October 2009, according to government statistics. But a different, broader measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment is at 9.8 percent.

Coming off a difficult week of campaigning, in which he acknowledged he struggled to articulate his position on abortion among other missteps, Mr Trump's comments to the Washington Post might be some of his most bearish on the economy and financial markets.

"I think we're sitting on an economic bubble. A financial bubble," he said.

Some economists agree the stock market is in a period of overvaluation but do not see that as foretelling a cataclysmic economic downturn originating in the US.

"Nobody can predict what the stock market is going to do," said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.

"I cannot predict a stock market crash, so I cannot predict a recession. I don't see any of the reasons for a recession going forward unless there is a huge problem with the market or there is some catastrophic world event which is beyond the scope of economics."

Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, put the probability of an imminent recession at less than 10 percent. "If it happens, it would be because of what is happening overseas, especially in China and Europe," he said.

'US still solid enough'

Joel Naroff, chief economist at Naroff Economic Advisors in Pennsylvania, said it would take a "total financial meltdown" to trigger a recession.

"We can get by with Europe growing minimally," he said. "We can get by with China growing modestly because the rest of the US is still solid enough that we can handle weakness in the rest of the world."

The Democratic National Committee criticised Mr Trump for his remarks, saying they "undermine our economy".

Mr Trump's success with voters, despite him sometimes saying things only to contradict them later, has also alarmed many leading figures within his own party. Some of them are openly plotting to try to prevent him from becoming the nominee at the party's national convention in July.

Republican National Committee chairman Reince Priebus said on Sunday that voters were "afraid" of their economic situation, when asked about Mr Trump's remarks on CNN's "State of the Union" show.

"When people are afraid and when they're angry, sometimes people say things that they regret," he said, apparently referring to Mr Trump's remarks.

He also played down speculation that party leaders would seek to dislodge Mr Trump by helping someone who is not even a declared candidate prevail at the convention, which becomes governed by complicated voting rules if no candidate arrives with a clear majority.

"I think that our candidate is someone who's running," Mr Priebus said, referring to Mr Trump, US Senator Ted Cruz of Texas and Ohio Governor John Kasich. The candidates will next face voters on Tuesday in Wisconsin, where recent polls show Mr Cruz holding a small lead over Mr Trump.

-Reuters

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