International Monetary Fund cuts South Africa's growth forecast for next two years

Andrew Cummings
January 22, 2018

Investor enthusiasm sent all three major stock indexes to record finishes, and the Dow to its first close above 26,000.

Global economies are recovering simultaneously and at a stronger pace, and will get at least a short-term boost from the USA tax cuts, the International Monetary Fund said Monday.

But deep inequality remains in the country and the International Monetary Fund does not expect the growth to last long. "Consistent with these plans, the country's ongoing and necessary rebalancing process implies lower future growth", Obstfeld said at a news conference in Davos.

The global output is estimated to have grown by 3.7 per cent in 2017, which is 0.1 percentage point faster than projected in the fall and half percentage point higher than in 2016, it noted.

While stronger oil prices are helping a recovery in domestic demand in oil exporters, including Saudi Arabia, the fiscal adjustment that is still needed is projected to weigh on growth prospects.

But the changes could also widen the US trade deficit, strengthen the dollar and affect global investment flows, the IMF said, warning that the benefits of the tax package will be short-lived and that growth in the world's largest economy will slow from 2022 onwards. That would be the strongest year for global growth since 2011 and represents an upward revision of 0.2 percent since the IMF's forecast in October.

The WEO upgraded the US GDP forecast by a surprising four-tenths of a point this year to 2.7 percent, compared to the expected 2.3 percent in 2017.

Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. Beijing is attempting to move the economy away from fast but unsustainable growth based on massive investment to slower, steadier growth built around consumer spending.

Lagarde, also a co-chair for this year's annual meeting, said global growth has been accelerating since 2016, and all signs point to a continuing strengthening of this growth. It said that expiring tax provisions and larger fiscal deficits brought on by the tax cuts would drag growth lower, starting in 2022.

America's top trading partners will also see benefits, especially Canada and Mexico.

Further, the global economic activity continues to firm up. The recent USA tax legislation will contribute noticeably to U.S. growth over the next few years, largely because of the temporary exceptional investment incentives that it offers, he said.

"As the year 2018 begins, the world economy is gathering speed". Trump recognized the anxieties of many working-class Americans during the campaign and promised he would help those at the bottom.

However, it cut its forecast for Spain's growth for 2018 by 0.1 percentage point, saying political uncertainty linked to the Catalonia region's independence push was expected to impact business confidence and demand.

"Strong GDP growth can not be relied upon by itself to generate inclusive socio-economic progress and rising median living standards", the report concluded.

The figures were released in World Economic Outlook (WEO) update which was released, in Davos on the sidelines of the World Economic Form (WEF), today.

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