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January 22, 2018 12:00 AM

IMF projects global growth at 3.9% each for 2018, 2019

Sophie Baker
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    The International Monetary Fund upped its forecast for 2018 and 2019 global growth to 3.9% each, but warned that the current upturn is unlikely to become the new normal.

    The IMF's new World Economic Outlook Update revised growth projections upward by 0.2 percentage points for each year, compared with the previous estimates in October.

    Forecasts were revised to reflect "increased global growth momentum and the expected impact of the recently approved U.S. tax policy changes," the IMF said in its update.

    These tax policy changes are set to stimulate activity, with a positive impact on U.S. growth forecasts, too. For 2018, the IMF revised its U.S. growth forecast to 2.7%, up from 2.3% in the October update; for 2019, growth was revised upward to 2.5% from 1.9%.

    The short-term impact in the U.S. is expected to be driven by an investment response to the corporate income tax cuts. "The effect on U.S. growth is estimated to be positive through 2020, cumulating to 1.2% through that year, with a range of uncertainty around this central scenario. Due to the temporary nature of some of its provisions, the tax policy package projects to lower growth for a few years from 2022 onwards," the IMF said. "The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018 to 2019."

    Eurozone growth was revised upward for 2018 to 2.2%, from 1.9% in October. For 2019, growth is forecast at 2%, up from 1.7%.

    The U.K., however, saw its growth projection for 2018 unchanged compared with October, at 1.5%, but it was revised downward by 0.1 percentage points to 1.5% for 2019.

    The IMF said while the improvement in global growth forecasts is "good news," political leaders and policymakers must keep in mind "that the present economic momentum reflects a confluence of factors that is unlikely to last for long. The global financial crisis may seem firmly behind us, but without prompt action to address structural growth impediments, enhance the inclusiveness of growth, and build policy buffers and resilience, the next downturn will come sooner and be harder to fight."

    It added that the current upturn also "faces medium-term downside hazards that likely will grow over time," including closure of output gaps in advanced economies, when longer-term growth rates are expected to be "well below pre-crisis rates."

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