The results of the Congressional midterm elections held in the USA are being followed closely around the world. While it is expected that there may be changes in the economic and geopolitical policies of the USA according to the election results, this situation is also expected to affect global markets.
In the US Congressional midterm elections, Democrats reached 54 seats in the Senate and 228 seats in the House of Representatives, according to unofficial results. With this result, Republicans led by Trump have lost their majorities in both the House of Representatives and the Senate.
According to the information compiled by the AA correspondent, managers of leading economic institutes and financial institutions in Europe evaluate that the US midterm election results may lead to political blockages in the global economy and domestic politics.
Economists predict that political gridlock in the United States will increase uncertainty in global financial markets and make the disinflation process around the world more fragile.
Marcel Fratzscher, President of the German Institute for Economic Research (DIW), stated that the Democrats' victory in the US midterm elections is a positive message for the global economy and said:
"The principle of separation of powers has begun to operate more effectively again in the USA. Trump will no longer be able to easily restrict and restructure many state institutions according to his wishes, as has been the case with the US Federal Reserve (Fed) in the last two years. Congress can use its budget powers to further limit Trump's Iran policy. This could reduce energy prices and would also benefit Europe."
Kiel Institute of World Economy (IfW) President Moritz Schularick emphasized that the biggest winner of the election is American democracy and the rule of law and said, "The midterm elections are a clear turning point; these results mean the beginning of the end for Trump and the policies he implemented." made his assessment.
Political deadlock and budget crises in domestic politics are on the way
Clemens Fuest, President of the Munich-based Economic Research Institute (Ifo), pointed out that a period of complete deadlock has begun in US domestic politics and said, "Although Trump can veto the Democrats' legislative proposals, he no longer has the majority he needs for his own projects such as new tax cuts. This means that we will see budget crises and spending freezes more frequently, which may lead to a shutdown of the activities of the federal government." he commented.
Landesbank Baden-Württemberg Analyst Dirk Chlench stated that a conflictual relationship pattern has emerged between the White House and Congress that will last for two years and made the following predictions:
"Major legislative moves now depend on bipartisan agreement. Democrats may slow down Trump's domestic policy agenda, but their own moves will be limited due to the president's veto power. While this situation reduces the possibilities of fiscal stimulus, it may trigger new crises regarding budget financing and increasing the debt ceiling. The debt ceiling issue may again put serious pressure on the capital markets in 2027."
Michael Hüther, Director of the Institute of German Economy (IW) in Cologne, also stated that a turbulent process is expected in US domestic politics and said, "A deadlock in budget negotiations, which includes the risk of a temporary default, is at hand. Considering the 2028 presidential elections in which Trump cannot be a candidate again, the power struggles within the Republican Party will deepen after this defeat. This political uncertainty in Germany's most important trading partner will negatively affect transatlantic trade." He warned.
Risky steps and protectionism in foreign policy may continue
Achim Wambach, President of the Mannheim-based Center for European Economic Research (ZEW), stated that they predict that President Trump will try to carry out his political agenda through foreign and trade policies, as his room for movement in domestic politics is limited, and shared the following analysis:
"Trump still has broad powers in foreign policy. On the other hand, it would be a mistake to think that the USA will fully return to free trade with the Democrats gaining the majority. Protectionist economic policies are not unique to the Trump administration; there is a broad, non-partisan consensus in Washington on trade policies towards China and the protection of domestic industry."
Referring to Europe's vision and the steps it needs to take, Wambach warned the continent of complacency and said:
"Europe should not become complacent by relying on these election results, especially the results of the presidential elections in 2028. Europe should implement its own economic policy decisively, increase its competitiveness and establish its strategic independence. In this regard, trade barriers in the common market should be reduced, cooperation with the United Kingdom should be deepened, Mercosur and India agreements should be quickly implemented and new agreements should be concluded with the Philippines."
Berenberg Bank Chief Economist Holger Schmieding noted that one should be prepared for serious foreign policy turmoil in the last two years of the Trump presidency and said, "A politically weakened president may tend to embark on risky geopolitical adventures. Especially Cuba, where the US administration has increased the pressure by tightening sanctions, may become a serious source of concern in this process." he said.
Lessons for Europe
Pointing out that high inflation lies behind the defeat of the Republicans, VP Bank Chief Economist Thomas Gitzel said, "In addition, the construction of artificial intelligence data centers has created unrest in a part of the public. This result is a complete 'blue tsunami', referring to the color of the Democrats. The American people have given a clear warning to Trump. However, investors should not over-interpret the first reactions in the financial markets; historically, the distribution of seats in Congress has not been decisive for the stock markets in the long term." he said.
Commerzbank Economist Christoph Balz emphasized that the results were clear enough to completely negate the discussions of possible election manipulation and said, "This is a big blow for President Trump, who has accepted defeat. In his remaining two years, he will focus on executive orders and foreign policy where he can act more freely. Fundamental disagreements between Trump and European governments on international issues continue; therefore, Trump adopting a more aggressive attitude in foreign policy could be quite disturbing for Europe." made his assessment.
