Monday, 10 December, 2018

International Monetary Fund raises outlook for Canadian economy, upgrades global economic projections

India to grow at 7.4% in 2018 as against China's 6.8% International Monetary Fund Pic courtesy Reuters
Nellie Chapman | 22 January, 2018, 19:30

Global growth is projected to pick up in the near term mainly due to continued momentum in advanced economies and the expected impact of changes to the USA tax code. "Secondly, growth needs to be more inclusive, not just across countries but within countries".

The tax cuts would likely widen the US current account deficit, strengthen the USA dollar and affect worldwide investment flows, IMF chief economist Maurice Obstfeld said.

The pace of growth of the advanced nations was 1.7% in that year and is expected to have advanced to more than 2% for last year, this year and next.

"China will both cut back the fiscal stimulus of the last couple of years and, in line with the stated intentions of its authorities, rein in credit growth to strengthen its overextended financial system", Obstfeld said in a statement.

The effect on US 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.

The tax package, the largest such overhaul since the 1980s, slashed the corporate rate from 35% to 21% and temporarily reduced the tax burden for most individuals as well.

Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent.

The U.S. economy has been showing steady but underwhelming annual growth since the last recession in 2007-2009.

But it forecasts growth in the United Kingdom at 1.5% in each of 2018 and 2019, lagging well behind the average pace of fellow advanced economies - having led the pack as recently as 2016.

The 2019 growth projection for Japan moved to 0.9 from 0.8 percent.

However, it cut its forecast for Spain's growth for 2018 by 0.1 percentage point, saying political uncertainty linked to the Catalonia region's independence push was expected to impact business confidence and demand.

The revision reflects increased global growth momentum and the expected impact of the recently approved USA tax policy changes, according to International Monetary Fund.

Gross domestic product (GDP) in the world's second-largest economy is forecast to grow 6.6% this year and 6.4% next year, the International Monetary Fund said in an update to its World Economic Outlook on Monday.

Ironically, the stronger growth could provide the seeds of a possible reversal if it triggers faster-than-expected inflation in advanced economies, and a quicker increase in interest rates. China is projected to grow at 6.8 per cent during the same period.

"The global financial crisis may seem firmly behind us, but without prompt action to address structural growth impediments, enhance the inclusiveness of growth, and build policy buffers and resilience, the next downturn will come sooner and be harder to fight", Mr Obstfeld said.