IMF Credits US Tax Cuts with Uptick in Global Growth

International Monetary Fund Managing Director Christine Lagarde delivers opening remarks at the IMF’s 17th Jaques Polak Annual Research Conference

In reflection of brisk global trade, growth in trade of goods and services across the world was revised up 0.6 points to 4.6 percent in 2018 and 0.5 points to 4.4 percent in 2019, according to the International Monetary Fund.

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"Global growth has been accelerating since 2016, and all signs point to a continuous strengthening of that growth", International Monetary Fund managing director Christine Lagarde said during a news conference at the World Economic Forum's annual meeting in Davos, Switzerland. It estimated the Indian gross domestic product (GDP) growth at 6.7 per cent 2017-18, compared to the 6.5 per cent figure given by Ministry of Statistics and Programme Implementation.

Economic growth in China accelerated to 6.9 percent in 2017 from 6.7 percent in the previous year, largely thanks to public infrastructure investment and a property boom fuelled by credit expansion.

The pickup in growth has been broad based, with notable upside surprises in Europe and Asia.

The IMF further said that the global economic output was faster than what was estimated in 2017.

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The lender noted that the upward revisions to the global outlook arises primarily from advanced economies, where growth is now expected to exceed 2% in 2018 and 2019. "But 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 said.

"In addition, the USA tax reform and associated fiscal stimulus are expected to temporarily raise United States growth, with favourable demand spillovers for U.S. trading partners - especially Canada and Mexico - during this period". 'Secondly, growth needs to be more inclusive, not just across countries but within countries'.

The cyclical upswing underway since mid-2016 has continued to strengthen.

Corruption allegations under the leadership of President Jacob Zuma have hurt investor confidence in South Africa, with economic growth slowing to a near-standstill in recent years. "Financial conditions are quite easy, with booming equity markets, low long-term government borrowing costs, compressed corporate spreads, and attractive borrowing terms for emerging market and developing economies", he said.

However, the fund warned of several risks to global growth, including an asset price bubble as equity markets continue to soar. High-frequency hard data and sentiment indicators point to a continuation of strong momentum in the fourth quarter.

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. World trade is expanding, and consumers are more confident.

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