IMF sees world GDP growth picking up as US tax cuts gain traction
About half of the IMF’s global upgrade of GDP growth stems from the US tax cuts passed in December and enacted this year
Global growth will accelerate to the fastest pace in seven years as US tax cuts spur businesses to invest, the International Monetary Fund (IMF) said.
The fund raised its forecast for world expansion to 3.9% this year and next, up 0.2 percentage point both years from its projection in October. That would be the fastest rate since 2011, when the world was bouncing back from the financial crisis.
About half of the IMF’s global upgrade stems from the Republican tax cuts passed in December and enacted this year. Cuts to the corporate tax rate will give the world’s biggest economy a shot in the arm, lifting US growth to 2.7% this year, 0.4 point higher than the fund expected in October, the IMF said on Monday in an update to its World Economic Outlook. Projected US growth was the highest among advanced economies.
But in an unfortunate twist for President Donald Trump, who loathes the $505 billion US trade gap, the nation’s current-account deficit will widen as stronger demand drives imports. The IMF also predicted that the tax plan will reduce US growth after 2022, offsetting earlier gains, as some of the individual cuts expire and the US tries to curb its budget deficit.
The IMF also warns that a financial-market correction could spoil the party—a possible scenario it raises amid “rich asset valuations and very compressed term premiums.” Higher inflation could prompt the US Federal Reserve to raise its benchmark interest rate faster than expected, causing financial conditions to tighten around the world and sideswiping economies with heavy debt loads, said the Washington-based fund.
The IMF’s sunnier outlook will be cause for relief as the world’s financial and political elite converge on Davos, Switzerland, this week for the annual meeting of the World Economic Forum. Just past the first anniversary of his administration, Trump is scheduled to speak on 26 January to deliver an “America First” message touting his economic agenda. A government shutdown in Washington could scuttle the president’s plans for Davos, though.
Some of the discussion in Davos will be focused on guarding against complacency.
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