WASHINGTON (AFP) - The US presidential election produced the one result the financial markets feared most: no result at all.
The White House claimed victory for President George W. Bush after Tuesday's vote but Democratic challenger John Kerry refused to concede in Ohio insisting it could still win the midwest state with a rich harvest of 20 electoral votes.
"Until the matter is resolved, we expect the election to have a modest flight-to-safety impact on both the markets and some economic indicators, and we expect a similarly modest 'relief trade' once the winner is clear," Lehman Brothers chief US economist Ethan Harris said.
"However, after the long string of negative confidence blows -- the stock bubble, tech wreck, 9/11, war in Iraq, oil shock, and multiple finance scandals -- a second hung election in a row stands to suck a little more of the mojo out of the economy."
Four years ago, when Al Gore conceded defeat more than a month after the vote, the threat of a constitutional crisis weighed heavily on investors, Harris said.
In the month between election day and December 1, 2000, Wall Street's broad index, the Standard and Poor's 500, had slumped eight percent.
"The economy was already weakening, but the election crisis may have added a little extra downward kick: data released after the election were clearly weaker than before the election," Harris said.
As oil prices bubble, many analysts were already tipping a slowdown in activity in the final quarter of the year.
In the third quarter, the economy grew 3.7 percent.
"We expect a significant slowdown in the fourth quarter and in 2005 due to the negative effect of higher oil prices, a less accommodative policy mix and a persistence of risk aversion from businesses," said CDC Ixis economist Marie Pierre Ripert.
This year, the tight race has curtailed economic activity. The Federal Reserve's Beige Book survey last week said the election was "heightening uncertainty" among some consumers.
Whether Bush or Kerry is finally declared the winner, the economic and fiscal results may be similar, analysts say.
Both candidates have promised to halve the deficit in five years, after Bush's administration posted a record shortfall of 413 billion dollars for fiscal 2004, which closed on September 30.
"An expression used in golf is apt: you play the ball where it lies. In this case, the ball is in deep rough and the toughest holes are ahead," warned a report by the fiscal discipline advocate, Concord Coalition.
Each of the candidates' spending and revenue plans would cost a net 1.3 trillion dollars over 10 years, it estimated.
"Discussion of the budget deficit has had an Alice in Wonderland quality," Harris added.
"The candidates spoke of budget discipline while offering specific proposals to increase the deficit, coupled with vague promises to control spending. Meanwhile a series of pork barrel bills were enacted."
Neither candidate has hinted at a fundamental reform of the pension and health systems, he added.
"But perhaps the most immediate challenge is on the international front. The huge current account deficit is beginning to force down the dollar," Harris warned.
International coordination may be needed to help adjust the deficit, he said. "Will the new president embrace a coordinated effort or will there be a messy string of trade disputes and threats?"
For many Americans, however, job creation is the priority. The economy added 96,000 payroll jobs in September, leaving the economy with 820,000 fewer payroll jobs than when Bush took office.
"I don't think it is going to be that easy," said Wells Fargo Bank chief economist Sung Won Sohn.
11/03/2004 - 12:48 GMT - AFP