Published: Tue, January 23, 2018
Markets | By Noel Gibbs

International Monetary Fund raises global growth estimate after enactment of tax law

International Monetary Fund raises global growth estimate after enactment of tax law

The IMF expects the USA growth to accelerate to 2.7 percent this year, from 2.3 percent in 2017, citing increased investment as businesses take advantage of lower corporate tax rates. The forecast for 2019 now calls for 2.5% growth, up from 1.9%.

But markets have rallied since Deputy President Cyril Ramaphosa's election as the ruling African National Congress (ANC) leader in December, as investors have warmed to his promises to root out corruption and kick-start economic growth.

However, on the long run, International Monetary Fund predicted that Trump's tax plan will not benefit the USA, but that, on the contrary, the economic growth is expected to be reduced after 2022, reversing the progress that will be made during the next two years.

"The revision reflects increased global growth momentum and the expected impact of the recently approved United States tax policy changes", the fund said.

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The second, because this is mostly a cyclical recovery and in absence of continuous reforms will return to problems that triggered financial crisis. and thirdly, because of uncertainty surrounding financial sector in face of progressive rise in interest rates, he said at his press conference in Davos.

According to the report, which was released in Davos on Monday, world growth is expected to exceed 2% in 2018 and 2019. Now those figures have been revised up to 2.7 percent in 2018 and 2.5 percent in 2019.

China's growth estimate was lifted to 6.6 percent this year from 6.5 and to 6.4 percent next year from 6.3, an upgrade that also reflects stronger external demand. High-frequency hard data and sentiment indicators point to a continuation of strong momentum in the fourth quarter. Purchasing managers' indices indicate firm manufacturing activity ahead, consistent with strong consumer confidence pointing to healthy final demand.

However, the rosier outlook came with a major caveat on financial markets, which the International Monetary Fund warned could be at the risk of a confidence-shaking correction.

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At that time the IMF's director general said that the UK's economic performance since the Brexit vote in June 2016 had vindicated the Fund's pre-referendum warnings.

Current upswing in the global economy "furnishes an ideal moment to act on a range of multilateral challenges", Obstfeld said.

"Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive". "In an environment of financial market optimism, ensuring financial resilience is imperative".

An improving global growth outlook, weather events in the United States, the extension of the Opec+ agreement to limit oil production, and geopolitical tensions in the Middle East have supported crude oil prices. Forecasts for emerging and developing economies were unchanged.

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