IMF sees US growing faster on Trump expansion plan

The IMF said the US economy would grow faster than previously expected in 2017 and 2018 based on the incoming Trump administration’s tax and spending plans.

IMF sees US growing faster on Trump expansion plan

But it kept its global growth forecasts unchanged due to weakness in some markets.

Updating its World Economic Outlook, the IMF forecast overall global growth at 3.4% for 2017 and 3.6% for 2018, unchanged from October. That compared to 3.1% in 2016, the weakest year since the 2007 to 2009 financial crisis.

It estimated a modest fiscal stimulus under president-elect Donald Trump would push US GDP to 2.3% in 2017, a gain of 0.1% point on the last forecast, and to 2.5% in 2018, up by 0.4% percentage point.

However, the IMF said Trump’s plans for expansionary fiscal measures including tax cuts and infrastructure spending also could stoke inflation in an economy already nearing full employment.

“If a fiscally-driven demand increase collides with more rigid capacity constraints, a steeper path for interest rates will be necessary to contain inflation, the dollar will appreciate sharply, real growth will be lower, budget pressure will increase, and the US current account deficit will widen,” IMF chief economist Maurice Obstfeld said.

That would increase the likelihood of more protectionist US trade measures and retaliatory responses, Obstfeld told a news conference.

“In that scenario, all countries would lose out,” he said.

But the new IMF outlook does not include any assumptions regarding Trump’s trade plans, such as potential tariffs on Mexican and Chinese goods, as there seems to be less of a political consensus surrounding them, Mr Obstfeld said.

— Reuters

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