International Monetary Fund raises Italy growth forecasts

Randall Padilla
January 23, 2018

"The US tax policy changes are expected to stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts", the International Monetary Fund said in the update, which was released on the sidelines of the World Economic Forum in Davos, Switzerland.

This forecast, according to the outlook, reflects the expectation that favorable global financial conditions and strong sentiment will help maintain the recent acceleration in demand, especially in investment, with a noticeable impact on growth in economies with large exports.

The IMF retained its forecast for India's growth rate at 7.4% of its Gross Domestic Product in 2018 and 7.8% in 2019. The region continues to account for over half of world growth.

The IMF says the pick-up in global growth last year was broad-based, with 120 countries - accounting for three quarters of world GDP - experiencing stronger growth in year-on-year terms, making it the broadest synchronised global growth surge since 2010.

The Update estimated United States growth at 2.3 percent for last year and forecast a growth rate of 2.7 percent this year and 2.5 percent next year.

It says Trump's corporate tax cuts are expected to stimulate activity, with the short-term impact in the U.S. mostly driven by the investment response to the tax policy changes.

Growth in 2018 and 2019 will be driven by advanced economies, where expansion will exceed 2 per cent in 2018 and 2019, higher than the October projections.

"(W) hatever output impact its tax cut will have on an economy so close to full employment will be paid back partially later in the form of lower growth, as temporary spending incentives (notably for investment) expire and as increasing federal debt takes a toll over time", Obstfeld said.

"The current cyclical upswing provides an ideal opportunity for reforms".

The Tax Cuts and Jobs Act, which was signed into law by President Donald Trump in December, is projected to push GDP growth higher than previously expected. It said that a strong Indian economy would offset decelerating growth in China.

The IMF's United Kingdom forecast for 2018 is unchanged at 1.8 per cent.

The agency noted that risks to its global outlook were "broadly balanced" in the near term, but skewed to the downside in the medium term. At a time of widespread economic euphoria, with upward revisions of prospects for world economy and Europe in particular, Spain is only developed economy that has reduced its growth prospects. A possible trigger is a faster-than-expected increase in advanced economy core inflation and interest rates as demand accelerates.

"(P) olitical leaders and policymakers must stay mindful that the present economic momentum reflects a confluence of factors that is unlikely to last for long", Obstfeld said, calling for governments to act promptly to build policy buffers, reinforce defenses against financial instability, and invest in structural reforms, productive infrastructure and people.

And the absence of worries in the near term could prompt financial market players to look for riskier and more profitable investments "and amplify the buildup of financial vulnerabilities", the International Monetary Fund warned.

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