World Economy

IMF: Trump Spending Plan Will Aid US Growth

IMF: Trump Spending Plan Will Aid US GrowthIMF: Trump Spending Plan Will Aid US Growth

The International Monetary Fund on Monday lifted its forecast for US economic growth in 2017 and 2018 based on president-elect Donald Trump’s tax cut and spending plans, but said this would largely be offset by weaker growth in several key emerging markets.

Updating its World Economic Outlook, the IMF kept its overall global growth forecasts unchanged from October at 3.4% for 2017 and 3.6% for 2018, up from 3.1% growth in 2016, the weakest year since the 2008-2009 financial crisis.

The United States will see a slight 0.1 percentage-point improvement in 2017 gross domestic product and a stronger 0.4 percentage-point gain in 2018 as Trump lays plans for expansionary fiscal measures including tax cuts and infrastructure spending.

These would push US growth to 2.3% in 2017 and to 2.5% in 2018, the IMF said, noting that they could also 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 in a statement.

He added that such a scenario could raise the specter of more protectionist measures and retaliatory responses.

But the new IMF outlook does not include any assumptions regarding Trump’s proposed trade policies such as potential tariffs on Mexican and Chinese goods or a renegotiation of the US-Canada-Mexico North American Free Trade Agreement.

The IMF does assume a stronger dollar, a firming in oil prices and “more inflationary pressure and a less-gradual normalization of US monetary policy”.

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