IMF increases global growth forecast for 2017 and beyond

Global economic output is estimated to have grown 3.7 percent last year and is projected to accelerate to 3.9 percent in 2018 and 2019, according to the International Monetary Fund’s (IMF) latest quarterly World Economic Outlook (WEO) Update.    The International Monetary Fund (IMF) has raised its global economic growth estimates for the 2017, 2018 and 2019 years.
   The IMF now estimates global economic output to have grown 3.7 percent last year, 0.1 percentage point faster than previously projected and 0.5 percentage points above the 3.2 percent growth rate seen in 2016, according to the fund’s latest quarterly World Economic Outlook (WEO) Update.
   The fourth quarter growth represents a continuation and acceleration of the cyclical upswing that began in mid-2016.
   According to the IMF WEO update, roughly 120 economies that account for three quarters of world gross domestic product (GDP) saw their year-over-year growth rates pick up in 2017, representing “the broadest synchronized global growth upsurge since 2010.”
   The IMF noted that in the third quarter of 2017, growth among advanced economies, particularly those of Germany, Japan, Korea, and the United States, as well as key emerging and developing markets like Brazil, China, and South Africa, was higher than previously projected.
   For this year and next, the fund has raised its projections 0.2 percentage points to 3.9 percent as a reflection of increased global growth momentum and expected impacts from the tax policy changes that were recently approved in the United States, the IMF said.
   “The U.S. 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 WEO update read, in part. “The effect on U.S. growth is estimated to be positive through 2020, cumulating to 1.2 percent through that year, with a range of uncertainty around this central scenario.
   “Due to the temporary nature of some of its provisions, the tax policy package is projected to lower growth for a few years from 2022 onwards,” the IMF added. “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.”
   Growth in advance economies is now expected to exceed 2 percent in 2018 and 2019, according to the IMF, reflecting expectations that favorable global financial conditions and strong market confidence will help maintain the recent acceleration in demand, especially in investment, with a noticeable impact on growth in economies with large exports.
   In addition, the fund expects the recent tax reforms in the U.S. and associated fiscal stimulus to temporarily raise U.S. growth, as well as increase demand from U.S. trading partners, especially Canada and Mexico.
   The fund warned, however, that short-term downside risks to their latest forecasts exist in the form of rich asset valuations and highly compressed term premiums, which could result in a financial market correction, thereby dampening market confidence and overall growth.
   “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,” the IMF said. “Inward-looking policies, geopolitical tensions, and political uncertainty in some countries also pose downside risks.”
   According to the IMF, the current growth cycle “provides an ideal opportunity for reforms” to the global marketplace.
   “Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive,” it 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. 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.”
   In protecting against these downside risks, the IMF said those shared priorities among policy makers should include “continuing the financial regulatory reform agenda; avoiding competitive races to the bottom in taxes, labor, and environmental standards; modernizing the rules‑based multilateral trade framework; strengthening the global financial safety net; preserving correspondent banking relationships; curbing cross-border money laundering, organized crime, and terrorism; and mitigating and adapting to climate change.”