The global economy will gain momentum in 2018, driven in large part by recently approved U.S. tax-code changes, according to the latest forecast of the International Monetary Fund World output, adjusted for inflation, will grow 3.9% a year in 2018 and 2019, the strongest since 2011, and an upward revision of 0.2 percentage points from the IMF’s forecasts in October.
When the IMF last released its global economic forecasts, the details of the U.S. tax overhaul weren’t finalised, nor was a bill assured of passage. 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.
The U.S. tax changes are “expected to be responsible for about half of the upward revision to global economic growth over the next two years,” the IMF said. The IMF is releasing its forecasts at an event in Davos, Switzerland, where business leaders and policy makers have gathered for the World Economic Forum. The IMF said growth in 2017 picked up in 120 economies that together account for about 75% of global GDP. The IMF said it was the “broadest synchronized global growth upsurge since 2010” when the world enjoyed a strong, but ultimately fleeting, snapback from the financial crisis.
Opening Remarks for the World Economic Outlook Conference Christine Lagarde, Managing Director, International Monetary Fund January 22, 2018
• Welcome and thank you all for coming today. This is the first time that the World Economic Outlook Update has been launched at Davos and I want to thank Klaus Schwab and the WEF for hosting us this year.
• In a moment, I will introduce the IMF’s Chief Economist Maury Obstfeld and his team to walk us through the WEO, but first I want to give a brief overview:
• Global growth has been accelerating since mid-2016, and all signs point to a further strengthening both this year and next. This is very welcome news.
• Perhaps, being here in January, we might be tempted to think of the words of the poet William Blake who said, “In winter, enjoy.” But that kind of complacency would be a mistake. We certainly should feel encouraged, yet we should not feel satisfied. Why?
o There are still far too many people left out from the recovery. In fact, about one fifth of emerging markets and developing countries saw their per capita incomes decline in 2017.
o At the same time, while growth is higher, it is mostly cyclical. Absent reforms, the fundamental forces that had us worried about the “new mediocre” – and future growth potential – will remain in place.
o There is also significant uncertainty in the year ahead. The long period of low interest rates has led to a buildup of potentially serious financial sector vulnerabilities. We are seeing a troubling increase in debt across many countries and we need to remain watchful.
• As I have been saying recently, the time to repair the roof is when the sun is shining.
• This week is a perfect opportunity for world leaders to focus on those repairs. The theme of this year’s WEF annual meeting is: ‘Creating a shared future in a fractured world.’ Let me outline how I believe we can reach this shared future, together:
o Shared Growth. Policymakers should use this moment to make the difficult structural and fiscal reforms that might not happen otherwise. This means taking steps to boost long-term growth, paying down debt in places where it is too high,
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and in other places, investing back into the economy through infrastructure and effective social spending.
o Shared Opportunity. Growth needs to be more inclusive, not only across countries but also within them. Some areas of focus include training for workers displaced by automation, new opportunities for young people, and bringing more women into the labor force.
o Shared Global Responsibility. We need robust international cooperation if we are going to tackle shared problems – including fighting corruption, improving the international trading system, tackling tax evasion, and addressing climate change.
In conclusion, we should certainly appreciate this season of broad-based growth momentum. But we should also use this time to find lasting solutions to the challenges facing the global economy in 2018.
