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IMF Credits US Tax Cuts with Uptick in Global Growth
February 21 2018, 05:34 | Van Peters
IMF: Trump Tax Reform Will Accelerate Growth in US and Around the World
Secondly, shared opportunities that will lead to inclusive growth, particularly in the area of human capital development and skills for a tech driven globe.
The International Monetary Fund says US tax reform and its associated fiscal stimulus will give a temporary boost to the USA economy, which will have a spillover effect for Canada and Mexico.
"The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes", the fund said.
But in an unfortunate twist for President Donald Trump, who loathes the $505-billion USA trade gap, the nation's current-account deficit will widen as stronger demand drives imports.
For now, the news is positive: It points to the fact that corporate and individual tax cuts are predicted to drive global growth and gives Congress a good reason to lock in the cuts.
The IMF also warned that a financial-market correction could spoil the party - a possible scenario it raises amid "rich asset valuations and very compressed term premiums". "This short-term growth boost will have positive, albeit short-lived, output spillovers for US trade partners, but will also likely widen the USA current account deficit, strengthen the dollar, and affect worldwide investment flows".
Growth forecasts for many euro area economies, especially Germany, Italy, the Netherlands, as well as advanced Asian economies including Japan have been revised up too, reflecting stronger global trade and investment.
"The political uncertainty create risks in the realisation of reforms or the possibility of a re-orientation of the agenda, also in the context of elections coming in various countries" including Italy, Mexico and Brazil, it said in its World Economic Outlook, presented on the sidelines of the World Economic Forum.
US President Donald Trump will join the Davos meeting and is expected to talk about his "America First" trade agenda. At a press conference, International Monetary Fund chief Christine Lagarde urged global policymakers to "fix the roof" while the going was good, calling for a more inclusive development strategy as almost one-fifth of developing and emerging economies saw their per capita income decline in 2017.
The IMF also sounded the alarm over the threat of another global recession if governments become complacent about the current growth momentum and fail to take action to address problems and prepare for the next downturn. The latter is forecast to stimulate activity in America and its trading partners, and contribute about half of the cumulative revision to world expansion over 2018-2019, the International Monetary Fund said.
But it forecasts growth in the United Kingdom at 1.5% in each of 2018 and 2019, lagging well behind the average pace of fellow advanced economies - having led the pack as recently as 2016.
The US economy is projected to grow 2.7% this year versus 2.3% seen in a WEO update in October. The fund left its 2018 forecast for India unchanged from three months ago, at 7.4 percent.
According to the report, which was released in Davos on Monday, world growth is expected to exceed 2% in 2018 and 2019.