IMF Downgrade of United States and UK Economies Puts Investors on Notice

Higher economic growth feeds through into higher corporate earnings while low inflation holds back central banks from raising policy rates. For financial markets it’s the best of all possible worlds

IMF Downgrade of United States and UK Economies Puts Investors on Notice

Growth is projected to rise in 2017 and 2018 but will barely return to positive territory in per capita terms this year for the region as a whole and would remain negative for about a third of the countries in the region. "On the revenue side, there may be benefits from shifting from personal income taxes to indirect taxes, including emissions taxes and property taxes, as well as from base broadening while lowering marginal tax rates", it said.

But it now forecasts 1.9 percent growth for the 19 countries that use the euro currency (up from 1.7 percent in April). The Fund reversed previous assumptions that the Trump administration's planned stimulus measures would boost USA growth, largely because no details of those plans have been made public. "They're not built into our baseline (forecast) because hopefully they don't happen, but there are risks", Obstfeld told a news conference in Kuala Lumpur. But the fund left its forecast for global growth unchanged from an April forecast, partly because the United States is unlikely to get much help from tax cuts and higher spending.

However, it upgraded GDP projections for the euro zone area for 2017 to 1.9 percent, 0.2 percentage point higher than in April.

The world body revised its 2017 outlook for Canada following strong growth in the first quarter and indications of "resilient second-quarter activity". However, its 2018 forecast remains untampered at 1.5%.

According to its projections for 2017, South Africa's growth was put at 1 percent while Nigeria was expected to muster just 0.8 per cent. It said China's growth would still moderate in 2018 to 6.4 percent, but noted that estimate was up 0.2 percentage point from the April forecast on expectations that Beijing would maintain high levels of public investment.

Obstfeld attributed the economic growth recorded in the first two-quarters of 2017 to the trade upsurge in Asia and the overall upsurge in the world growth. "But there is also a component that has been fuelled by expanding domestic credit, and that's the part that worries us", Obstfeld said.

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