IMF revises upwards global growth forecast
Domestic politics will likely douse optimistic assumptions about a tax-cut-driven rise in US investment
The IMF today revised upwards its forecasts for global economic growth this year and next to 3.9%, 0.2 percentage points (pp) higher than its previous forecast published in October. The Fund estimates that global GDP in 2017 grew by 3.7%, 0.5 pp better than in 2016 and 0.1 pp higher than its October forecast. The forecasts are included in the latest edition of the IMF's World Economic Outlook. The IMF believes that 2017's expansion has been broad-based, with growth in Europe and Asia having been stronger than expected and that the momentum will be sustained by the effects of the recent tax cut in the United States. Downside risks in the medium term include bubbly financial asset valuations, financial vulnerabilities in developed and emerging economies, populist economic nationalism and geopolitical tensions.
Our judgement
The forecasts are optimistic, primarily because the Fund sees growth in the United States predicated on the tax cuts driving greater investment in the short term than the politics may allow. The future sunsetting of some of the tax provisions is also likely to reverse from 2022 onwards near-term positive effects of the cuts.