IMF firm on global outlook

The IMF yesterday maintained its global growth outlook for this year and 2018, as lower forecasts for the United States over uncertainties related to its fiscal policy are offset by expansion in China, the euro zone, Japan and Canada.

But global growth, which is projected to reach 3.5 per cent this year and 3.6 per cent next year, also faces medium-term risks, including high market valuations, monetary policy normalisation especially in the US, protectionism and geopolitical uncertainty, the fund said.

The IMF downgraded its growth forecast for the US for this year to 2.1 per cent versus 2.3 in April. For 2018, it lowered it to 2.1 per cent from 2.5 per cent.

“While the markdown in the 2017 forecast reflects in part the weak growth outturn in the first quarter of the year, the major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy change,” the fund said in its update to the World Economic Outlook.

US president Donald Trump had promised to cut taxes and boost spending on infrastructure as key planks of his economic policy. So far none of these election promises have materialised, dampening investor confidence.

First quarter US growth reached 1.4 per cent, the slowest rate since the second quarter of last year. The US economy grew 1.6 per cent last year at the slowest pace in five years. With regards to the United Kingdom, the forecast for this year was also revised down to 1.7 per cent, versus 2 per cent in April, owing to lower than expected first quarter growth .

Meanwhile, forecasts for the euro zone, Japan, Canada and China were raised.

“Growth has been revised up for Japan and especially the euro area, where positive surprises to activity in late 2016 and early 2017 point to solid momentum,” the fund said.

Projections for countries including France, Germany, Italy and Spain were increased thanks to better than expected growth figures in the first quarter and indications of “stronger momentum in domestic demand”.

China’s economy is now forecast to grow at 6.7 per cent for this year and 6.4 per cent for next year, higher than previously estimated by 0.1 per cent and 0.2 per cent, respectively.

For the Middle East, North Africa, Afghanistan and Pakistan region, growth was maintained at 2.6 per cent for this year, but lowered by 0.1 per cent to 3.3 per cent for next year as the oil price outlook remains cloudy.