Global econ­omy to grow 3.5pc: IIF

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The global econ­omy is set to grow at a faster clip than an­tic­i­pated in 2018, due mostly to lower tax rates in the United States, but ten­sions over trade threaten to de­rail months of syn­chro­nised global ex­pan­sion, the In­sti­tute of In­ter­na­tional Fi­nance (IIF) said.

The In­sti­tute, a global fi­nan­cial in­dus­try as­so­ci­a­tion, lifted its fore­cast for global growth in 2018 by 0.2 per­cent­age points to 3.5 per cent as it boosted its growth view on the US econ­omy for the cur­rent year to 2.9pc.

The US econ­omy grew 2.3pc in 2017 ac­cord­ing to IIF. Its pre­vi­ous 2018 fore­cast, be­fore tax cuts were en­acted late last year, was for the US econ­omy to grow 2.4pc in 2018.

“You have the US, where there is im­por­tant fis­cal stim­u­lus be­cause of tax re­form, and this is go­ing to boost con­sump­tion and in­vest­ment,” said Sergi Lanau, deputy chief econ­o­mist at IIF. Ac­cord­ing to the re­port, faster US growth is “the key driver of the up­ward re­vi­sion.” How­ever, the syn­chro­nised growth that the global econ­omy saw through 2017 for the first time in a decade is show­ing fis­sures, as ex­porters see pres­sure due to un­cer­tainty over global trade.

Lanau pointed to re­cent weak eco­nomic data out of Ger­many as ev­i­dence of the ef­fect of trade un­cer­tainty. Ger­man ex­ports plunged un­ex­pect­edly in Fe­bru­ary, post­ing their big­gest monthly drop in more than two years.

Also, soft­en­ing data on new ex­port or­ders in Ja­pan and Korea are “con­sis­tent with the idea that there is some un­cer­tainty around what trade poli­cies will look like down the road,” Lanau said.

The trade mea­sures an­nounced so far are rel­a­tively small so the eco­nomic im­pact is not big, he added, but they cause con­cern in mar­kets and could de­lay in­vest­ment and con­sump­tion.

Be­sides trade ten­sions, the IIF sees the cen­tral risk to global growth in a po­ten­tial spike in in­fla­tion, specif­i­cally in the United States.

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