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US Tax Overhaul Will Accelerate Global Growth, IMF Says
23 January 2018, 01:32 | Cedric Leonard
Comparing the January report to the last outlook, released back in October 2017, the new edition took into account the increased global growth momentum and the expected impact of the recently approved USA tax policy changes.
Though, the International Monetary Fund upgraded its growth forecast for the global economy in 2018 to 3.9 percent, it however downgraded the 2018 and 2019 growth forecasts for sub-Saharan Africa to 3.3 percent respectively. This update thus serves as the IMF's first major estimate of how the tax overhaul will ripple around the world economy - as a large, but temporary, deficit-fueled fiscal stimulus.
The eurozone economy is expected to grow by 2.2% this year and 2% in 2019, up from earlier estimates of 1.9% and 1.7%.
In addition to growth in the United States, the International Monetary Fund found that global growth increased about 3.7 percent in 2017, which is 0.1 percentage point higher than was previously projected.
The forecast which represents 0.2 percent from the 1.9 percent projected in October 2017 was contained in Fund's World Economic Outlook Update, January 2018 released yesterday.
But the fund cautioned that the positive effects of the US tax changes, which include a lower rate for corporations, would be fleeting. Both estimates were 0.1 percentage point higher than those given in its last outlook in October.
It said the growth pickup "has been broad based, with notable upside surprises in Europe and Asia".
Looking at the growth rates for previous years, a slowdown in Britain's economy was quickly evident, with the rate of GDP growth dropping from 1.9% in 2016 to the 1.5% predicted for 2019, yet that was far less than many had anticipated before the Brexit vote.
A stronger USA economy will also boost the economies of America's trading partners, especially Mexico and Canada.
But after that, the bill's near-term focus could become a liability.
Advanced economies are seeing solid simultaneous growth, and the United States tax reform passed just before Christmas will have a measurable effect, at least for a couple of years. "We see several reasons to doubt the durability of the current momentum". China, during the same period is expected to grow at 6.6% and 6.4% respectively, the IMF said.The IMF said, the aggregate growth forecast for the emerging markets and developing economies for 2018 and 2019 is unchanged, with marked differences in the outlook across regions.It projected India to grow at 7.4% in 2018 as against China's 6.8%. China is already striving to rein in the growth of credit in its economy, a move that will act to slow China's rapid pace of growth.
Much of this momentum will carry through into the near term, Mr Obstfeld said.
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