International Monetary Fund lifts global growth forecast to 3.9%, saying momentum is building

Donald Trump's tax cuts will propel growth in the US which will taper after 2020 due to the temporary nature of the policy the fund said. SAUL LOEB  AFP

At the World Economic Forum meeting that is taking place in Davos, Switzerland, Christine Lagarde, IMF Managing Director claimed that this accelerated economic recovery should give all the leaders in the world a chance to fix their most pressing issues. "The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018-19". The pickup in growth has been broad based, with notable upside surprises in Europe and Asia.

The euro area also will see growth accelerating, improving in almost all member states, especially Germany, which saw its GDP forecasts upgraded by a half point this year and next to 2.3 percent and 2.0 percent, respectively.

The Saudi economy is also projected to grow by 2.2 percent next year, up 0.6 percent on the previous estimate, it said.

The IMF said the short-term impact in the U.S. will mostly be driven by the investment response to the corporate income tax cuts. It estimated the Indian gross domestic product (GDP) growth at 6.7 percent in 2017-18, compared to the 6.5 percent figure given by the Ministry of Statistics and Programme Implementation.

Donald Trump's U.S. tax cut is expected to stimulate economic growth, the International Monetary Fund says.

The findings also show that most of the stimulus can be attributed to the reduction of the corporate tax rate to 21 percent.




It has told policymakers that the current cyclical upswing provides an "ideal opportunity" for reforms.

The IMF's latest report cited possible trade barriers and regulatory shake-ups as risks to growth as the United Kingdom seeks a new relationship with Europe after Brexit and the U.S. renegotiates its free trade treaty with neighbours Mexico and Canada. The forecast for 2019 now calls for 2.5% growth, up from 1.9%.

However, due to demonetisation in late 2016 and implementation of the Goods and Services Tax (GST), India's economy slowed down a little to 6.7 percent.

Further growth of 3.5% is anticipated in 2019 on the back of a modest upgrade to the growth forecast for Nigeria while not much growth is expected from South Africa. If global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a buildup of financial vulnerabilities in advanced and emerging market economies alike.

At the same time, the International Monetary Fund said the cyclical upswing in global economic activity provides "an ideal opportunity" for countries to undertake structural reforms aimed at boosting productivity and building resilience against downside risks. "In an environment of financial market optimism, ensuring financial resilience is imperative". Forecasts for emerging and developing economies were unchanged.

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