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A brighter outlook for the global ecomony

  • 25/01/2018
  • Jane Bray

According to the International Monetary Fund (IMF), prospects for the global economy are looking brighter, particularly within Europe and Asia.

Tax reforms in the United States are also expected to stimulate economic activity, especially business investment, as a result of lower corporate taxes but the IMF has substantially downgraded its forecast for South Africa for this year and next.

The new global forecast has growth of 3.9% this year and next. That represents an upgrade of 0.2% for each year. It also constitutes faster expansion than previous years (3.7% in 2017; 3.2% in 2016).

The improvement is widespread. The report states 120 economies accounting for three-quarters of global economic activity saw a pick-up last year. Both developed and emerging economies were affected, which is the broadest synchronised global growth upsurge since 2010.

Although the improved performance towards the end of last year was widespread, the report mentions Asia and Europe as having had "notable" positive surprises in growth.

The impact of the tax reforms on the US and its trading partners accounts for about half of the global growth revision for this year and next. However, some of the provisions in the tax reform are temporary, so the IMF expects slower growth for a few years from 2022.

There was a warning from the IMF's chief economist, Maurice Obstfeld, when he introduced the report at a news conference in Davos: "The present economic momentum reflects a confluence of factors that is unlikely to last for long."

It's important, he argued, that governments take steps to address impediments to growth, to make it more inclusive and to make economies more resilient when the next downturn comes.

There are a small number of forecasts that have been lowered for individual countries. The largest negative change is for South Africa, particularly 2019, where the downgrade is 0.7%. There's a smaller reduction for this year. The changes reflect what the IMF calls increased political uncertainty weighing on confidence and investment. There is also a small (0.1%) downgrade for the UK. The report, which is an update between the IMF's full-scale forecasting exercises, does not give a reason.

It predicts UK growth of 1.5% this year and next. Within the G7 leading developed countries, that is better than Italy and Japan, but behind the other members of the group.

The report also cites the Brexit negotiations as one of many potential risks to the outlook. It is one example where long-standing international commercial agreements are under renegotiation.

The IMF says an increase in trade barriers and regulatory realignments, if that were the result of these renegotiations, could weigh on global investment and reduce efficiency.

The report warns that a failure to make growth more inclusive could increase pressures for what it calls "inward-looking policies" - by which the IMF means new trade barriers, which it regards as bad for economic growth.

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