International Monetary Fund chief warns against being complacent about growth

Ivan Schwartz
January 23, 2018

"The revision reflects increased global growth momentum and the expected impact of the recently approved US tax policy changes", the group said in a report published ahead of the World Economic Forum in Davos, Switzerland.

Lagarde believes it is good news that the global economic growth is on positive trajectory, but makes a strong case for the inclusiveness of the economies. This update thus serves as the IMF's first major estimate of how the tax overhaul will ripple around the world economy - as a large, but temporary, deficit-fueled fiscal stimulus.

For the year 2019, the outlook represents a 0.1 percentage point downgrade for Britain.

The update for Canada came as the International Monetary Fund said world output is expected to grow 3.9 per cent this year and 3.9 per cent in 2019, up two-tenths of a percentage point in both years. Russian Federation is among primary sources of global GDP acceleration along with the United States, Canada, Brazil and Turkey, IMF Economic Counsellor Maurice Obstfeld said on Monday.

At the release of the Update in Davos, IMF head Christine Lagarde said that for the world economy, "all signs point to a further strengthening both this year and next", but cautioned that "complacency would be a mistake".

But the fund cautioned that the positive effects of the USA tax changes, which include a lower rate for corporations, would be fleeting. Notably, with a growth rate of 7.

"Instead, we think the world economy will lose some momentum later this year and in 2019".

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Eurozone is forecast to expand 2.2% this year, which is faster than the 1.9% predicted in October.

The study also finds that the tax reform in the United States and the fiscal stimulus that flows from that will also spillover favorably into America's trading partners-particularly Mexico and Canada. Mexico's economy will be 0.4 points stronger this year and 0.7 points stronger in 2019. Numerous bill's provisions are temporary, and their effect will fade. Beijing is attempting to move the economy away from fast but unsustainable growth based on massive investment to slower, steadier growth built around consumer spending.

"Our view is that the current upturn, however welcome, is unlikely to become a "new normal" and faces medium-term downside hazards that likely will grow over time", Obstfeld said.

Sub-Saharan Africa is also expected to record growth with 2018 expected to record a 3.3% growth up from 2.7% in 2017.

But forecast growth for the US, Germany, France, Italy and Japan are all pushed upwards this year as global growth is seen hitting 3.9 per cent, the most rapid since the 4.2 per cent expansion in 2011.

Much of this momentum will carry through into the near term, Mr Obstfeld said.

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