International Monetary Fund sees brighter global prospect, optimistic markets on USA tax policy changes

IMF: Trump Tax Reform Will Accelerate Growth in US and Around the World

The International Monetary Fund has lifted its forecasts for global growth, saying momentum is building in global economic activity and Donald Trump's tax cuts in the U.S. are likely to stimulate activity further.

"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.

The IMF's World Economic Outlook pencils in expansion of 3.9% for the world economy for this year and next - an upgrade of 0.2 percentage points in each case.

"The revision reflects increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes", the International Monetary Fund said. Thanks largely to the US tax change, Canada's growth will be 0.2 percentage points stronger this year and 0.3 points stronger in 2019, compared with previous estimates. Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. One-fifth of emerging and developing countries have seen ir per capita income fall by 2017. Those figures are up 0.2 percentage points from the IMF's estimates last October.

"The next recession may be closer than we think, and the ammunition with which to combat it is much more limited than a decade ago, notably because public debts are so much higher", he said.




The revision reflects increased global growth momentum and the expected impact of the recently approved USA tax policy changes said the report released in Davos at the World Economic Forum. It raised forecasts for 2018 and 2019 by 0.2 percent to 3.9 percent. "The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018-19".

The revision reflects stronger than expected activity past year, higher projected external demand, and the expected macroeconomic impact of the tax reform, in particular the reduction in corporate tax rates and the temporary allowance for full expensing of investment, it said.

The IMF said the cyclical upswing underway since mid-2016 has continued to strengthen.

However, the rosier outlook came with a major caveat on financial markets, which the International Monetary Fund warned could be at the risk of a confidence-shaking correction.

But it has warned that extreme weather events - such as droughts in Australia, and hurricanes in the Atlantic - pose a significant risk to its positive forecasts, saying "recurrent, potent climate events" impose "devastating humanitarian costs and economic losses" on affected regions. In an environment of financial market optimism, ensuring financial resilience is imperative, the report said. If global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a buildup of financial vulnerabilities in advanced and emerging market economies alike.

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