The International Monetary Fund is upgrading the outlook for the world economy, noting surprisingly strong growth in Europe and Asia and predicting that U.S. tax cuts will give the American economy a short-term boost.
The IMF on Monday forecast global growth of 3.7 percent for 2017, which would be the most substantial annual growth since 2011, and to 3.9 percent for this year and 2019.
“Global growth has been accelerating since mid-2016, and all signs point to a further strengthening both this year and next,” IMF Director Christine Lagarde said at the World Economic Forum, which gears up this week in Davos, Switzerland.
Fueling that acceleration is stronger growth in Europe and Asia, along with in the U.S., Canada and larger emerging markets.
“Until recently, the lackluster global recovery was narrowly based on solid, if unexciting, growth in just a few economies – the United States, United Kingdom and Germany,” said Nariman Behravesh, chief economist of IHS Markit, in a note. “However, in 2017 the global economy recorded its best growth since 2011 supported by broader foundations, including a turnaround in the economic prospects of the Eurozone, Japan and large emerging markets such as Brazil and Russia.”
The IMF, which issued its latest outlook at the World Economic Forum’s annual confab in Davos, Switzerland, says 120 countries, representing three-quarters of world economic output, enjoyed economic growth in 2017, creating the broadest global expansion in seven years. World trade is expanding, and consumers are more confident.
The IMF expects the U.S. growth to accelerate to 2.7 percent this year, from 2.3 percent in 2017, citing increased investment as businesses take advantage of lower corporate tax rates.
“The recent U.S. tax legislation will contribute noticeably to U.S. growth over the next few years, largely because of the temporary exceptional investment incentives that it offers,” said Maurice Obstfeld, economic counsellor and director of research at the IMF.
Yet he also cautioned that the global upturn is unlikely to be sustained and that it faces headwinds, including aging populations in some countries and weaker productivity growth.
Some experts think tax cuts will deliver a smaller boost to U.S. growth than the IMF is forecasting. Projecting a more modest lift, Capital Economics expects the American economy to expand at a rate of 2.5 percent in 2018.