There is anticipated short term growth in the global economy – primarily for 2018 and 2019, according to the International Monetary Fund (IMF), primarily due to the corporate tax cuts by Donald Trump which is expected to provide a shot in the arm.
The growth forecast for the global economy was upgraded by the IMF by 0.2 per cent to 3.9 per cent for both 2018 and 2019 at the event off the launching the latest World Economic Outlook (WEO) report at the annual Davos gathering.
The tax cuts of Trump that were enacted as laws at the end of last year would be instrumental in inspiring corporate to invest more for greater economic output which in turn would provide a short-term boost to both the U.S. economy and those of its trade partners, said Maurice Obstfeld, the IMF’s economic counsellor. But following the increase in equity valuations, there could a possible sharp drop in markets and this is a risk that lurks in the distance, he said.
The global economy would potentially be facing a downturn that will “come sooner and be harder to fight” than expected if the world leaders were unable to address and foster the resilience of their economies, he also warned those gathered at the Swiss ski resort.
“Political leaders and policymakers must stay mindful that the present economic momentum reflects a confluence of factors that is unlikely to last for long,” he added.
In recent time, there has been a good recovery of the economies of the U.S., Europe and Asia from the low reached during the 2007-08 financial crisis, resulted in a synchronized global upswing, and this forms the background for the upgrade from the IMF. However, low rates of interest and flooding their economies with billions of dollars through quantitative easing by the central banks of the world also added to the current upgradation of the world economy.
Obstfeld warned that the current situation was not the “new normal” and might fade and hence urged the policymakers not to sit back and enjoy the sunshine. While the financial markets could be unsettled by central banks who might jack up the rates of interest much faster than anticipated due to rising inflation arising from growth in developed nations.
The IMF anticipated that the U.S. economy would grow an additional half a percentage than the fund anticipated in October because most of the upgrade of the global growth outlook by the IMF has been based on the tax changes. It is expected that there would be a growth rate of 2.3 per cent in the U.S. economy in 2017 and 2.7 per cent in 2018. It is also anticipated that the growth rate would fall back to 2.5 per cent in 2019.
(Adapted from TheGuardian.com)