DAVOS (TheInsiderStories) – The International Monetary Fund’s (IMF) World Economic Outlook, released on Monday, says tax cuts in the United States will improve U.S. investment and help its trading partners.
In Davos, the Washington-based IMF revised its global forecast upward, to 3.9 percent for both 2018 and 2019, a 0.2 percent improvement from its October prediction. It cited the new U.S. tax package, which while increasing the deficit, cuts corporate tax rates from 39 to 21 percent and reduces some individuals’ tax payments.
IMF expect the U.S. tax policy changes are can stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts. 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.
But there was a warning from the IMF’s chief economist, Maurice Obstfeld, when he introduced the report at a news conference in Davos: “The present economic momentum reflects a confluence of factors that is unlikely to last for long.”
It’s important, he argued, that governments take steps to address impediments to growth, to make it more inclusive and to make economies more resilient when the next downturn comes.
There are a small number of forecasts that have been lowered for individual countries.
The World Economic Outlook also predicted 6.5 percent economic growth in Western Europe over 2018 and 2019; a continuance of five percent growth in developing Europe, with greater improvements in Poland and Turkey; Latin American growth of 1.9 percent in 2018 and 2.6 percent in 2019, with growth in Mexico offsetting the economic decline in Venezuela; continued 3.5 percent growth in the Middle East, and a 6.5 percent expected growth, over two years, in Asia.