IMF tips higher growth in UK, modest US uplift
The International Monetary Fund (IMF) has taken a cautious stance, assuming only a modest boost to the US economy from incoming US President Donald Trump's promise of fiscal stimulus.
The IMF maintained its forecast for global growth in 2017 of 3.4pc, it said on Monday in a quarterly update to its World Economic Outlook.
The IMF said its unchanged forecast for the world economy masks a divergence in the fortunes of advanced economies, which are seeing stronger growth due partly to a reduced drag from inventories, and those of emerging markets, where growth has been unexpectedly weak. In the UK, domestic demand has stayed afloat better than expected in the aftermath of the June referendum to leave the European Union, the fund said.
The fund projects the euro area will expand 1.6pc this year, better than it previously thought.
The IMF raised its forecast for Japan by 0.2 percentage point to 0.8pc in 2017.
It also increased its projection for China by 0.3 percentage point, now predicting that the world's number two economy will grow 6.5pc this year.
Global expansion for 2018 is forecast at 3.6pc, also unchanged from the fund's previous forecast in October. The impact of a Trump administration is one of the biggest unknowns facing the global economy. While Trump has promised to cut taxes and boost infrastructure spending, he's also threatened to impose tariffs on trade partners such as China and Mexico. Such punitive measures may sap growth if they provoke retaliation. Trump's policy priorities will become clearer after his inauguration on January 20.
The high degree of uncertainty about what's in store for US economic policy presents a "wider than usual range of upside and down risk factors", IMF Chief Economist Maurice Obstfeld said in remarks prepared for delivery Monday.
"In light of the US economy's momentum coming into 2017 and the likely shift in policy mix, we have moderately raised our two-year projections for US growth," he said. "However, the specifics of future fiscal legislation remain unclear, as do the degree of net increase in government spending and the resulting impacts on aggregate demand, potential output, the Federal deficit, and the dollar."
In a boon to so-called Brexiteers, the IMF lifted its forecast for the UK economy this year, reversing a cut just over three months ago because of growth in the second half of 2016.
The IMF said the decision was "mostly on account of a stronger-than-expected performance during the latter part of 2016".
Pro-Brexit campaigners accused the IMF and other institutions of scaremongering before the June referendum. (Bloomberg)