IMF: US Tax Cuts to Boost Global Growth in 2018

The International Monetary Fund (IMF) upgraded its forecast for global economic growth in 2018 and 2019, saying that tax cuts would likely boost investment in the US economy and help its main trading partners.

Global growth forecasts for 2018 and 2019 have both been revised upward by 0.2 percentage points to 3.9%, making it the quickest expansion since 2011.

“The revision reflects increased global growth momentum and the expected impact of the recently approved US tax policy changes,” IMF said in a report.

The $1.5 trillion tax package signed into law by US President Donald Trump on December 22 did not lead to a major market reaction, but it gave a strong lift to the outlook for the US. It has also been broadly viewed as a legislative victory for Trump in his 1st year in office.

IMF forecasted the US economy to grow 2.7% in 2018, faster than its previous forecast of 2.3%. Growth would slow to 2.5% in 2019, but still faster than the IMF’s previous forecast of 1.9%.

The country’s top trading partners would also see benefits, especially Canada and Mexico.

However, the IMF added that US growth would likely start slowing after 2022 as the temporary spending incentives brought about by the tax cut begin to expire.

Meanwhile, the world economy will likely grow 3.9% this year and next, the fund said. It would be up 0.2 percentage points for both years on the back of a better outlook in the US and Eurozone.

The IMF revised its European growth forecasts higher — by 0.3 percentage points in both years —  to 2.2% in 2018 and 2% in 2019. On the other hand, it trimmed its forecast for Spain’s growth for 2018 by 0.1 percentage point, suggesting that political uncertainty linked to the Catalonia region’s independence push was expected to impact business confidence and demand.

For Japan, the IMF revised up its forecast to 1.2% this year and 0.9% in 2019. Further, it maintained its forecast for Britain’s growth at 1.5% this year.

China’s economy was expected to gain 6.6% this year, but slow to 6.4% in 2019. Growth in the Middle East, North Africa, Afghanistan, and Pakistan was also expected to pick up in 2018 and 2019, but remain subdued at 3.6% this year.

Growth would be weighed down in Latin America due to an economic collapse in Venezuela, and IMF revised down its growth estimate for South Africa to 0.95% for this year and 2019.

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