IMF: US tax policy could give brief boost to global economy

23 Jan 18

Global growth could see a short-term boost as a result of US tax policy changes attracting corporate investments, the International Monetary Fund has said.

In an update of its World Economic Outlook, the IMF said the growth would most likely start to slow after 2022 as spending incentives caused by the tax cuts will wear off.

President Donald Trump’s tax cuts, which are the largest change to the US tax system since the 1980s, would cut corporate tax from 35% to 20% and save the average American family of four about $1,182 on their tax bill.

However, it has also been criticised by European finance ministers who said the changes were discriminatory and could harm both the financial sector and international trade.

It is believed the tax cuts could add up to $1.5trn to the US federal deficit over the next decade.

The US government shutdown on Friday as Democrats and Republicans were unable to agree on a spending bill.

The IMF said global economic activity is estimated to have grown by 3.7% in 2017, 0.1 percentage point faster than projected at the end of the year, and half a percentage point higher than in 2016.

The growth estimates for euro area economies have also been higher than expected, especially for GermanyItaly and the Netherlands, “reflecting the stronger momentum in domestic demand and higher external demand” from investors.

Spain was marked down slightly for 2018 as a result of the increased political uncertainty on confidence and demand, the IMF said.

Japan was also revised up for 2018 and 2019 amid the supplementary budget for 2018 and a stronger-than-expected recent activity.

The US was now projected to expand by 2.7% in 2018, up from the 2.3% forecast in October.

But IMF said the growth would slow to 2.5% in 2019.

China’s economy was expected to grow 6.6% this year but slow to 6.4% in 2019. The IMF also said the Middle East, North Africa, Afghanistan and Pakistan was expected to grow in 2018 and 2019 but stay at 3.6% this year.

The growth estimate for South Africa was revised down to 0.9% for this year and the next as a result of concerns over political uncertainty.

Nigeria maintained its expected growth at 2.1% this year and 1.9% in 2019.

 

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