Trump Tax Cuts Could Jump-Start Global Economy
US president-elect Donald Trump’s tax cuts and spending plans could deliver a shot in the arm to the US economy, lifting growth around the world, although uncertainty about his trade policies adds to the risks, according to the World Bank.
The Trump administration could squander the economic gains of fiscal stimulus if it imposes new trade barriers that provoke retaliation by other countries, the Washington-based development lender said Tuesday in the latest update to its global economic outlook, Bloomberg reported.
Overall, it’s too early to assess what the net impact will be of Trump’s economic policies, the World Bank said. Accordingly, it left its forecast for US growth this year and next unchanged, at 2.2% and 2.1%, respectively. The outlook doesn’t incorporate the expected effect of Trump’s policy proposals, according to the report.
The bank projects the world economy will grow 2.7% in 2017, down 0.1 percentage point from its forecast in June. Stalling trade, weak investment and heightened policy uncertainty have dampened global economic activity, pushing growth down to an estimated 2.3% last year—the slowest rate since the financial crisis.
The World Bank estimates global growth will pick up to 2.9% next year, also down 0.1% from its June call.
Growth to Accelerate
The development lender sees the eurozone expanding at a 1.5% rate this year with uncertainty lingering as the UK starts negotiations to withdraw from the European Union, which will weigh on growth this year and next. Japan is seen growing 0.9% this year, while China’s output is set to expand 6.5%, the World Bank said.
US growth could accelerate to as much as 2.5% this year and 2.9% in 2018 if the Trump administration follows through on a pledge to cut the corporate income-tax rate from 35% to 15%, and slash individual rates, the World Bank estimates.
The US is the biggest trading partner for about a quarter of the world’s nations. As a result, efforts by the US to renegotiate trade deals and impose new barriers could set back the global economy, the World Bank said.
Trump, who will take office on Jan. 20, focused on trade during his campaign for the president, saying he’ll rethink trade relations with China, renegotiate or withdraw from the North American Free Trade Agreement and keep the US out of the Trans-Pacific Partnership agreement.