U.S. Tax Cuts Improve Forecast for Global Economic Growth

The International Monetary Fund this week revised up its forecast for world economic growth in 2018 and 2019, saying sweeping U.S. tax cuts were likely to boost investment in the world’s largest economy and help its main trading partners.

However, the IMF, in an update of its World Economic Outlook, also added that U.S. growth would likely start weakening after 2022 as temporary spending incentives brought about by the tax cuts began to expire.

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

“Political leaders and policymakers must stay mindful that the current economic momentum reflects a confluence of factors that is unlikely to last for long,” Obstfeld said at the World Economic Forum in Davos.

He said economic gains from the tax cuts would be partially paid back later in the form of lower growth as temporary spending incentives, notably for investment, expired, and as rising federal debt took a toll.

IMF Managing Director Christine Lagarde pointed to a “troubling” increase in debt levels across many countries and warned policymakers against complacency, saying now was the time to address structural deficiencies in their economies.

Pointing to growth in the U.S. and China, the IMF forecast global growth to 3.9 percent for both 2018 and 2019.

The U.S. economy has been showing steady but underwhelming annual growth since the last recession from 2007 to 2009. The IMF now expects it to expand by 2.7 percent in 2018, much higher than the 2.3 percent the fund forecast in October.

Source: Reuters