International Monetary Fund raises Japan's growth forecast to 1.2% on broad-based global recovery

Chelsea West
January 23, 2018

In its latest World Economic Outlook (WEO) update, the International Monetary Fund has also projected a 7.8 percent growth rate for India in 2019.

The growth forecast for the 19-nation eurozone was revised up 0.3 points to 2.2 percent in 2018 and 0.3 points to 2.0 percent in 2019 due to the stronger momentum in domestic demand and higher external demand.

This short-term growth boost will have positive, albeit short-lived, output spillovers for USA trade partners, but will also likely widen the USA current account deficit, strengthen the dollar, and affect worldwide investment flows, the IMF official said.

The boost to USA growth will be significant.

But markets have rallied since Deputy President Cyril Ramaphosa's election as the ruling African National Congress (ANC) leader in December, as investors have warmed to his promises to root out corruption and kick-start economic growth. Some 120 economies, accounting for three quarters of world GDP, have seen a pickup in growth in year-on-year terms in 2017, the broadest synchronised global growth upsurge since 2010.

Global growth is projected to pick up in the near term mainly due to continued momentum in advanced economies and the expected impact of changes to the US tax code.

But the changes could also widen the US trade deficit, strengthen the dollar and affect worldwide 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.

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The IMF cited geopolitical tensions, such as the rising nuclear threat posed by North Korea and faster-than-expected monetary tightening in the United States and Europe, as risk factors that could affect an otherwise sound outlook for the world economy. The group now projects GDP will increase by 2.7 percent in 2018 and by 2.5 percent in 2019. "In fact, about one fifth of emerging markets and developing countries saw their per capita incomes decline in 2017", she said. This growth is expected to continue into 2018 and 2019, as global growth is revised up to 3.9 percent for these two years.

The revision reflects stronger than expected activity past year, higher projected external demand, and the expected macroeconomic impact of the tax reform, in particular the reduction in corporate tax rates and the temporary allowance for full expensing of investment, it said.

The US economy has been showing steady but underwhelming annual growth since the last recession in 2007-2009.

The IMF said even though the economic "rebound could prove stronger in the near term", the risks to the global forecast remain tilted to the downside.

Current upswing in the global economy "furnishes an ideal moment to act on a range of multilateral challenges", Obstfeld said. It attributed the accelerating growth to "Modinomics", or economic reforms implemented by Prime Minister Narendra Modi.

An improving global growth outlook, weather events in the U.S., the extension of the Opec+ agreement to limit oil production, and geopolitical tensions in the Middle East have supported crude oil prices. Among emerging market economies, headline and core inflation have ticked up slightly in recent months after declining earlier in 2017.

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