Jan 2017 Financial News

IMF boosts US growth estimate on expected stimulus

Jan 18, 2017

WASHINGTON, United States (AFP) — The International Monetary Fund on Monday boosted its estimates for US growth on expected stimulus spending by the incoming Trump administration, but kept the forecast for global growth unchanged.

The IMF’s quarterly World Economic Outlook (WEO) however said the forecasts for 2017 and 2018 are beset by uncertainty and risk, including signs of rising protectionism.

It sees world growth of 3.4 per cent this year and 3.6 per cent in 2018, unchanged from the October report, as concerns about slowing in major developing economies were offset by the recovery in advanced economies and China.

The US growth estimate was raised a tenth of a point this year to 2.3 per cent, and for next year by four-tenths to 2.5 per cent.

The IMF said it used the most likely of many possible scenarios for the United States under President-elect Donald Trump, one that includes higher spending and other steps to boost the economy.

This is in contrast to the World Bank report released last week, which did not change the US forecasts because it said Trump’s policy plans were too uncertain.

Both organisations agree the forecasts are clouded by unknowns.

There is “a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the incoming US administration and its global ramifications,” the IMF said.

However, the forecasts should become more certain by the release of the next World Economic Outlook in April” as more clarity emerges on US policies and their implications,” it said.

Among the uncertainties, the IMF noted that increased spending to stimulate the economy, as Trump has proposed, means “stronger future demand implying more inflationary pressure,” which in turn means the US central bank may have to raise interest rates faster than currently expected.

The Federal Reserve increased the benchmark lending rate in December, and policymakers indicated they may need to implement three more increases this year, but they too stress the uncertainty about policies to be implemented by the Republican Trump, who takes office Friday.

TRADE RESTRICTIONS HURT GROWTH

Trump has repeatedly threatened to slap import tariffs on goods from Mexico and China, and to restrict immigration, part of a growing protectionist political sentiment in many countries.

But the IMF warned that executing those policies could backfire on the US economy and create ripple effects abroad.

“We think at the end of the day that countries will recognise that these actions are not in their own self-interest, especially when there’s the risk of retaliation by other countries,” chief IMF economist Maurice Obstfeld said.

The possibility of a trade war cannot be ruled out, he said, adding that it “would derail our baseline forecast possibly considerably” and could be “quite disruptive.”

If growth in the US and China increases more than expected as a result of higher spending, that would have “positive spillovers” to their trading partners, unless protectionist measures counteract that, the IMF said.

CHINA GETS A BOOST

While major developing economies like India, Brazil and Mexico are facing slowdowns, the IMF raised its estimate for China given increased government spending to boost growth.

The IMF revised the 2017 China growth forecast to 6.5 per cent, 0.3 point higher than in October, while the 2018 estimate is unchanged at 6.0 per cent.

However, the fund cautioned that the spending that is fueling growth in China will be difficult to sustain and “raises the risk of a sharper slowdown or a disruptive adjustment.”

The IMF also expressed concerns about Britain as it prepares for difficult negotiations over its departure from the European Union and as two EU powers — France and Germany — prepare for elections this year.

“In Europe, Britain’s terms of exit from the European Union remain unsettled and the upcoming national electoral calendar is crowded, with possibilities of adverse economic repercussions,” Obstfeld said.

But while the IMF, before the Brexit vote, had issued a somber prediction in the event Britons opted to leave the EU, on Monday it revised upward its outlook for British growth this year (up 0.4 point, to 1.5 per cent), saying internal demand had resisted better than expected.

The IMF cut the 2017 forecast for India by 0.4 percentage points to 7.2 per cent, while the 2018 forecast was unchanged at 7.7 per cent.

Mexico saw its growth estimate slashed six-tenths of a point in each year to 1.7 per cent this year and 2.0 per cent in 2018.

For Brazil, the estimate was trimmed 0.3 point to just 0.2 per cent this year, rising to 1.5 per cent in 2018, unchanged from the October forecast.

But advanced economies generally are doing better, with Japan’s economy seen expanding 0.8 per cent this year, 0.2 point better than the last forecast, and 0.5 per cent in 2018.

The outlook for the euro area is picking up, with growth of 1.6 per cent expected this year and next, an upward revision of 0.1 point in the 2017 forecast.

This WEO forecast also incorporates a firming of oil prices “following the agreement among OPEC members and several other major producers to limit supply,” the IMF said.

That will help commodity exporters, including Russia, although the growth estimates for Moscow were unchanged at 1.1 and 1.2 per cent for 2017 and 2018, respectively.

 

Source:
Jamaica Observer
Wednesday January 18, 2017

http://www.jamaicaobserver.com/business/IMF-boosts-US-growth-estimate-on-expected-stimulus_86713