Increase in debt levels

IMF Managing Director Christine Lagarde pointed to a “troubling” increase in debt levels across many countries and warned policymakers against complacency, saying now was the time to address structural deficiencies in their economies.

Obstfeld said a sudden rise in interest rates could lead to questions about the debt sustainability of some countries and lead to a disruptive correction in “elevated” equity prices.

US President Donald Trump signed Republicans’ massive $1.5 trillion tax overhaul into law in December, cementing the biggest legislative victory of his first year.

The tax package, the largest such overhaul since the 1980s, slashed the corporate rate from 35 per cent to 21 per cent and temporarily reduced the tax burden for most individuals as well.

Pointing to growth in the United States and China, the IMF forecast global growth to 3.9 per cent for both 2018 and 2019, a 0.2 percentage point increase from its last update in October.

The US economy has been showing steady but underwhelming annual growth since the last recession in 2007-2009. The IMF now expects it to expand by 2.7 per cent in 2018, much higher than the 2.3 per cent the fund forecast in October. US growth was projected to slow to 2.5 per cent in 2019, it said.

The IMF also revised up its growth forecasts for the euro area, especially for Germany, Italy and the Netherlands “reflecting the stronger momentum in domestic demand and higher external demand”.

However, it cut its forecast for Spain’s growth for 2018 by 0.1 percentage point, saying political uncertainty linked to the Catalonia region’s independence push was expected to impact business confidence and demand.

The IMF revised up its growth forecast for Japan to 1.2 per cent this year and 0.9 per cent in 2019. It maintained its projection for Britain’s growth at 1.5 per cent this year.