IMF: Trump tax cuts will boost global economy

IMF chief economist: 'Effect of the tax cuts is coming now'
IMF chief economist: 'Effect of the tax cuts is coming now'

The Trump administration's tax overhaul is the latest piece of good news for the global economy.

The International Monetary Fund said Monday that it expects global growth of 3.9% this year and in 2019, an increase of 0.2 percentage points over the rates it predicted in October. It would be the quickest expansion since 2011.

The fund said that changes to the U.S. tax code approved in December were responsible for roughly half of the boost to growth.

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

The IMF expects the U.S. economy to grow by 2.7% in 2018, significantly faster than its earlier prediction of 2.3%. Growth will slow to 2.5% in 2019, but that's still much faster than the IMF's previous forecast of 1.9%.

America's top trading partners will also see benefits, especially Canada and Mexico.

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But the fund cautioned that the positive effects of the U.S. tax changes, which include a lower rate for corporations, would be fleeting. It said that expiring tax provisions and larger fiscal deficits brought on by the tax cuts would drag growth lower, starting in 2022.

The IMF found other reasons for optimism, saying there were "notable surprises" of faster growth in Europe and Asia.

The eurozone economy is expected to grow by 2.2% this year and 2% in 2019, up from earlier estimates of 1.9% and 1.7%. Growth will hit 6.6% this year in China, and 7.4% in India.

"This is very good news ... but political leaders need to remember that the growth reflects a set of circumstances that will not last," said Maurice Obstfeld, the IMF's economic counsellor.

He said that policy makers should seize the opportunity to work on "difficult reforms" to tackle inequality, reduce debt and prepare for the next crisis, which he said might be "closer than we think."

Davos 2018: Complete coverage

Britain, which will leave the European Union in March 2019, will be one of the few countries to miss out on stronger growth. The IMF now expects the country's economy to expand by just 1.5% in 2018 and 2019.

The IMF said that the global economy is likely to maintain its momentum in the short term, barring a correction in financial markets.

The World's Biggest Economies

But it also identified several risk factors that could hamper growth over the longer run, including inequality, climate change, political instability and "inward-looking policies" that could result in barriers to trade.

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