The IMF has lifted its forecasts for global growth, saying momentum is building in global economic activity and US President Donald Trump’s tax cuts are likely to stimulate activity further.
It said the growth momentum is expected to carry into this year and next year, and it revised upward its global growth forecasts by 0.2 percentage points for both years from 3.7 percent to 3.9 percent.
However, it warned that extreme weather events — such as droughts in Australia and hurricanes in the Atlantic — pose a significant risk to its positive forecasts, saying that “recurrent, potent climate events” impose “devastating humanitarian costs and economic losses” on affected regions.
It also warned that growing financial vulnerabilities could derail its forecasts, as could increasing trade barriers flowing from poorly executed trade renegotiations between the UK and the rest of the EU, and between the US, Canada and Mexico.
Trump’s corporate tax cuts are expected to stimulate activity, with the short-term impact in the US mostly driven by the investment response to the tax policy changes, it said.
The IMF estimated that the effect on US growth of the tax cuts would be positive through 2020, accumulating to 1.2 percent through that year, with a range of uncertainty around its central scenario.
However, it also warned that the effect of the cuts would probably wear off quickly — before detracting from growth “for a few years from 2022 onwards.”
The IMF yesterday released an update of its World Economic Outlook.
It came one day after Oxfam Australia released a report showing that the level of wealth held by Australia’s richest 1 percent grew to 23 percent last year, up from 22 percent in 2016, with the top 1 percent owning more wealth than the bottom 70 percent of Australians combined.
The report, Growing Gulf Between Work and Wealth, showed that the wealth share held by the top 1 percent in Australia has been growing almost continuously over the past two decades and income inequality has steadily climbed too, despite some fluctuations.
The IMF said the pickup 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 synchronized global growth surge since 2010.
Global economic output is estimated to have grown by 3.7 percent last year, which is 0.1 percentage points faster than projected in October last year, and 0.5 percentage points greater than projected in 2016, it said.
It has told policymakers that the current cyclical upswing provides an “ideal opportunity” for reforms.
“Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive,” the IMF said. “In an environment of financial market optimism, ensuring financial resilience is imperative.”
“Weak inflation suggests that slack remains in many advanced economies and monetary policy should continue to remain accommodative,” it said. “However, the improved growth momentum means that fiscal policy should increasingly be designed with an eye on medium-term goals — ensuring fiscal sustainability and bolstering potential output.”
“Multilateral cooperation remains vital for securing the global recovery,” it added.
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