IMF revises up global growth forecast on Trump tax cuts


IMF revises up global growth forecast on Trump tax cuts
The Logo of the 48th annual meeting of the World Economic Forum is pictured in Davos, Switzerland.

davos - Sweeping US tax cuts expected to boost investment in the world's largest economy

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Published: Mon 22 Jan 2018, 7:09 PM

Last updated: Mon 22 Jan 2018, 9:12 PM

The International Monetary Fund on Monday revised up its forecast for world economic growth in 2018 and 2019 saying that sweeping US tax cuts were expected to boost investment in the world's largest economy and help its main trading partners.

In an update of its World Economic Outlook, the IMF however warned that US growth would likely start weakening after 2022 as temporary spending incentives brought about by the tax cuts start to expire.

The tax cuts would likely widen the US current account deficit, strengthen the US dollar and affect international investment flows, IMF chief economist Maurice Obstfeld said.

US President Donald Trump signed Republicans' massive $1.5 trillion tax overhaul into law in December, cementing the biggest legislative victory of his first year. The tax package, the largest such overhaul since the 1980s, slashed the corporate rate from 35 per cent to 21 per cent and temporarily reduced the tax burden for most individuals as well.

The US economy has been showing steady but underwhelming annual growth since the last recession in 2007-2009.

The Fund revised up its forecast for global growth to 3.9 per cent for both 2018 and 2019, a 0.2 percentage point change from its last update in October.

It also said that economic activity in Europe and Asia was surprisingly stronger than expected last year, and global growth in 2017 was now estimated to have reached 3.7 per cent, 0.1 percentage point higher than the Fund projected in October.

"The US tax policy changes are expected to stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts," the IMF said in the update, which was released on the sidelines of the World Economic Forum in Davos, Switzerland.

"The effect on the US growth is estimated to be positive through 2020, culminating to 1.2 per cent through that year," it said, cautioning that after 2022 the tax cuts were expected to lower growth for a few years.

The IMF said the US economy was now expected to expand by 2.7 per cent in 2018, higher than the 2.3 per cent the Fund forecast in October. US growth was projected to slow to 2.5 per cent in 2019, it said. - Reuters

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