International Monetary Fund raises global growth estimate after enactment of tax law

Reuters

Reuters

In its latest World Economic Outlook update released on Monday ahead of the World Economic Forum in Davos, the International Monetary Fund projected India's GDP growth rate at 7.4% in 2018 and 7.8% in 2019.

The IMF further said that Asia will grow at 6.5 percent in 2018-19, which is the same pace as in 2017.

Key emerging market and developing economies, including Brazil, China, and South Africa, also posted third-quarter growth stronger than the fall forecasts.

But markets have rallied since Deputy President Cyril Ramaphosa's election as the ruling African National Congress (ANC) leader in December, as investors have warmed to his promises to root out corruption and kick-start economic growth.

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It estimates the effect on United States growth of the tax cuts will be positive through 2020, accumulating to 1.2% through that year, with a range of uncertainty around its central scenario.

"This forecast reflects the expectation that favourable global financial conditions and strong sentiment will help maintain the recent acceleration in demand, especially in investment, with a noticeable impact on growth in economies with large exports", reads the report.

But the changes could also widen the USA trade deficit, strengthen the dollar and affect global investment flows, the IMF said, warning that the benefits of the tax package will be short-lived and that growth in the world's largest economy will slow from 2022 onwards.

Mr Obstfeld said: "As the year 2018 begins, the world economy is gathering speed". The group now projects GDP will increase by 2.7 percent in 2018 and by 2.5 percent in 2019.

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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.

Aided by opening up of several key sectors over the last few years, foreign direct investment in India surged 17% to over $25 billion during the first half of the current financial year, even as private investment has remained muted due to excess capacity and high financial stress. A possible trigger is a faster-than-expected increase in advanced economy core inflation and interest rates as demand accelerates.

At the same time, the International Monetary Fund said the cyclical upswing in global economic activity provides "an ideal opportunity" for countries to undertake structural reforms aimed at boosting productivity and building resilience against downside risks. "Multilateral cooperation remains vital for securing the global recovery", it said.

Firstly, shared growth were policy makers should use these circumstances to make the structural or fiscal reforms that are too hard to make in more difficult times. In an environment of financial market optimism, ensuring financial resilience is imperative, the report said.

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