IMF ups worldwide growth for 2018, 2019

The International Monetary Fund on Monday said the global economy is expected to grow by 3.9 percent in both 2018 and 2019, a 0.2 percentage point higher than its fall forecasts.

The revision reflects increased global growth momentum and the expected impact of the recently approved US tax policy changes, the IMF said in its World Economic Outlook (WEO) report, published ahead of the World Economic Forum in Davos, Switzerland.

"As the year 2018 begins, the world economy is gathering speed," Maurice Obstfeld, IMF Economic Counsellor and Director of Research told a press conference on update of the WEO in Davos, which was broadcast live.

The IMF forecast growth of China's economy is expected to moderate gradually, though with a slight upward revision to the forecast for 2018 and 2019 relative to the fall forecasts, reflecting stronger external demand.

It predicted China's grow at 6.6 percent this year and 6.4 percent for the next year, both 0.1 percentage point higher than its October forecasts.

Last October, the IMF forecast China's economy to notch up to 6.8 percent in 2017, and to slow to 6.5 percent in 2018. It turned out that China's economy totaled about $13 trillion in volume in 2017, expanding 6.9 percent as it picked up pace for the first time in seven years.

Obstfeld said the two biggest national economies driving current and near-term future growth are predictably headed for slower growth.

China will both cut back the fiscal stimulus of the last couple of years and rein in credit growth to strengthen its overextended financial system, Obstfeld said.

"Consistent with these plans, the country's ongoing and necessary rebalancing process implies lower future growth," he said.

As for the US, whatever impact its tax cut will have on an economy so close to full employment will be paid back partially later in the form of lower growth, as temporary spending incentives (notably for investment) expire and as increasing federal debt takes a toll over time, he said.

In December, US President Donald Trump signed a massive $1.5 trillion tax overhaul into law.

The US tax reform and associated fiscal stimulus are expected to temporarily raise US growth, with favorable demand spillovers for US trading partners-especially Canada and Mexico-during this period, according to the WEO report.

Compared with the predictions the IMF made last fall, the US growth forecast has been raised from 2.3 percent to 2.7 percent in 2018, and from 1.9 percent to 2.5 percent in 2019.

Commenting on the forecast being 0.2 percentage point higher than IMF's current estimate of last year's global growth, Obstfeld said, "This is good news. But political leaders and policymakers must stay mindful that the present economic momentum reflects a confluence of factors that is unlikely to last for long."

According to the new update, global growth for 2017 is now estimated at 3.7 percent, 0.1 percentage point higher than projected in the fall.