Daily Management Review

IMF: American taxes will aid global growth


01/23/2018


The beginning of the year can be very successful for the world economy. The International Monetary Fund (IMF) predicts the acceleration of growth in several large countries. The largest increase is projected in the US, where tax reform will help increase investment. In addition, the oil exporting countries will benefit significantly from the continuing increase in oil prices. However, this situation can not last long. Once the effect of cyclical improvement is exhausted, countries will again face constraints such as low productivity growth and an aging population, the IMF warns.



The IMF raised its forecast for world economic growth in 2018 and 2019 by 0.2 percentage points, to 3.9% (in 2017 this figure was 3.7%, in 2016 - 3.2%). The fund indicates that the recovery of growth rates is cyclical: an increase in business activity occurs against a backdrop of mild financial conditions. At the same time, world trade, which has lagged behind in terms of growth rates from GDP for a long time, is growing faster than output due to the increase in investments - the forecast for the total increase in exports for two years has been increased by more than 0.5 pp, to 4.6% and 4, 4% respectively.

Accelerated growth is promoted mainly by developed countries. The Fund improved the forecast for the growth of the US economy in 2018 and 2019 by 0.4 and 0.6 percentage points (to 2.7% and 2.5% respectively), for the euro area - by 0.3 pp for both years (up to 2.2% and 2%). Unlike the World Bank, the IMF expects that the tax reform in the United States will help growth by sharply lowering rates that will allow corporations to increase their investments (but at the same time, imports and trade deficit will grow, which will benefit the country's trading partners). The cumulative positive effect of the reform in the US by 2020 in the fund is estimated at 1.2% of GDP. At the same time, the institution point out: from 2022, the package of measures will have a negative impact on growth rates due to the limited duration of a number of benefits and because of increase in national debt.

Among the developing countries, the largest correction of forecasts upward (by 0.4-0.6 pp) touched Saudi Arabia (to 1.6% and 2.2% in 2017 and 2018), as well as Mexico (to 2.3% and 3%) and Brazil (to 1.9% and 2.1%). As for China, the forecast is improved by 0.1 percentage points for both years, but in 2018 and 2019 growth rates will be lower than last year (6.6% and 6.45% against 6.8%). The fund also improved the forecast for oil prices, raising it for this year by $ 9.7, to $ 59.9 per barrel, and by 2019, to $ 56.4 per barrel.

Despite of the positive forecast, improvement of the situation cannot be considered a reason for increasing long-term growth rates - the nearest recession of activity will come sooner and it will be more difficult to fight against it, IMF chief economist Maurice Obstfeld warned, presenting the fund's report in Davos, Switzerland on Monday. The previous problems - low growth of labor productivity and aging population - limit opportunities for growth. The fund calls on countries to structural and fiscal reforms - to reduce the level of debt burden while supporting investment in infrastructure. Among the risks, the IMF also called the possible correction of financial markets due to already high quotes and compressed premiums over the term (the attraction of funds for a longer period costs companies only slightly more expensive). Even if a sharp increase in inflation does not occur, maintaining low rates will make the financial system more vulnerable to shocks, the fund warns.

source: reuters.com






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