US President Donald Trump's debacle in the midterms also has consequences for the global economy. Marcel Fratzscher from DIW hopes that the Iran war will be limited and energy prices will ultimately fall. However, Berenberg Bank's Holger Schmieding warns that Trump still remains US commander-in-chief and could now be tempted to undertake risky geopolitical adventures. Here are their assessments and those of other important economists:
Marcel Fratzscher, President of the DIW Institute in Berlin:
"The Democrats' victory in the US midterms is a positive message for the global economy, even if it could slow down the US economy in the short term. The most important positive message is that the separation of powers in the US is working better again: President Donald Trump can no longer curtail and restructure many state institutions to his will, as he has tried to do, for example, with the US Federal Reserve in the past two years. The majority of Democrats in both chambers of the US Congress is likely to make it more difficult for Trump to do his bidding Trade conflict, especially with Europe, can also be used to further limit Trump's war with Iran, which would also benefit Europe.
The aggressive behavior of US tech companies could now be curbed to some extent, as the Democrats are committed to regulating AI and are likely to be much more critical of the massive boom in the construction of data centers. This should be positive for growth prospects, especially in Europe, but in the long term also in the USA. It could also cool down the bubble on the financial markets for tech companies somewhat. Trump will also no longer be able to act as freely in financial policy and will have to be more accountable."
Christoph Balz, Commerzbank:
"The result is so clear that the ground has been removed from debates about possible election manipulation. This is a clear setback for President Trump, who has already admitted defeat. In his final two years in office, he will now focus even more on decrees and foreign policy, as he has greater freedom of action in these areas.
Holger Schmieding, chief economist at Berenberg Bank:
"For domestic policy legislation, Donald Trump is becoming a so-called lame duck due to the loss of the congressional majority in the last two years of his second term in office - similar to most recent US presidents before him. Trump could probably continue to block Democratic legislative initiatives with his veto. However, the scale of losses for the MAGA movement could loosen Trump's control over the Republican Party and potentially pave the way for greater bipartisan cooperation. A key question now is whether Democrats will move further to the left or focus on the political center to win the 2028 presidential election.
Even as a politically weakened president, Trump remains commander in chief of the US armed forces. Because he is constantly seeking attention and does not have a consistent long-term strategy, he may be even more tempted to undertake risky geopolitical adventures. Congress is unlikely to give him the funding for a costly military operation similar to the Iran War. Cuba, on the other hand, may have cause for concern. We will likely have to prepare for significant foreign policy turmoil in the final two years of the Trump presidency."
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank:
"The decisive result of election night is that the President is likely to suffer a massive weakening within his own ranks given the clarity of his defeat. I expect that in the next few weeks and months an increasing number of Republicans will speak out publicly against certain of the President's positions, which has hardly happened so far due to fear of the upcoming elections. In this respect, under these circumstances, Europeans have a better chance of being heard more strongly by selected Republicans when it comes to questions of customs policy or foreign policy. Nevertheless, Europe should not rely on that there is now a change of direction in customs policy or in the US's stance on the issues of NATO and Russia. Trump will probably continue to use customs instruments, since Congress was also not involved in customs decisions during his previous administration. However, new arbitrary decisions could meet with greater resistance within his own ranks and possibly influence the president's actions.
The result tends to strengthen the euro against the US dollar, although countless factors and scenarios play a role here, some of which have opposite effects. The fact that a president who has tried to deliberately weaken Europe during his time in office is now emerging from this election weakened should be interpreted by investors in favor of the euro. However, this can be overshadowed by other factors. A new military strike against Iran resulting in higher oil prices would increase the likelihood of interest rate hikes. The argument goes in the same direction that, given the weakening of the US President, the Fed members could gather the courage to further raise interest rates against Trump's wishes. The result would be a stronger US dollar. At the same time, the Democratic victory increases the likelihood that the AI sector could be more heavily regulated in the foreseeable future and/or the expansion of data centers will be slowed, which would probably help end the AI boom. That, in turn, would weaken the economy and prompt the Fed to cut interest rates, causing the U.S. dollar to lose value."
Thomas Gitzel, Chief Economist VP Bank:
"It's a blue tsunami. Donald Trump has received a strong lesson from US citizens. According to initial projections and initial results, the Democrats are winning the majority in the House of Representatives and the Senate. The cause of the Republicans' electoral defeat was high inflation, but the construction of AI data centers is also increasingly causing frustration among large parts of the population.
With the loss of the Republican majority in both chambers, Donald Trump's powers in financial matters, but also in filling important offices, will be significantly restricted. Trump will now rely even more on regulations than before. The president could also focus even more on foreign policy. In this area, Trump can act more freely and independently of Congress. This also includes recent attacks on Iran. But tariffs and trade conflicts could also become more prominent again."
