International Monetary Fund predicts India will surpass China's growth rate in 2018

Jon Howard
January 23, 2018

The International Monetary Fund (IMF) on Monday raised its global growth forecast for 2018 and 2019 by 0.2 percentage point to 3.9 percent, due to increased global growth momentum and the expected impact of the recently approved USA tax policy changes.

"Global economic activity continues to firm up", the Update said, raising last year's estimate by 0.1 percent from the October Outlook report to 3.7 percent, and 0.5 percent higher than the growth rate in 2016.

The fund said it expected South Africa's economy to grow by 0.9% this year, down from an earlier projection of 1.1% given in October. Global growth forecasts for 2018 and 2019 have been revised upward by 0.2 percentage point to 3.9 percent. 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.

Current upswing in the global economy "furnishes an ideal moment to act on a range of multilateral challenges", Obstfeld said. 'Secondly, growth needs to be more inclusive, not just across countries but within countries'.

Earlier in January, a top International Monetary Fund official said that India is reclaiming its place as global growth leader.

The lender noted that the upward revisions to the global outlook arises primarily from advanced economies, where growth is now expected to exceed 2% in 2018 and 2019. The forecast for 2019 remained unchanged.

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The global economy is now expected to grow 3.9 percent this year and next, two-tenths higher than the previous estimate, and up from 3.7 percent in 2017. The Indian economy, which grew at 7.1% in 2016, slowed in 2017 due to demonetisation in November 2016 and GST rollout on 1 July 2017. Notably, with a growth rate of 7.

"High-frequency hard data and sentiment indicators point to a continuation of strong momentum in the fourth quarter".

"The U.S. tax policy changes are expected to stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts", the report states.

Ironically, the stronger growth could provide the seeds of a possible reversal if it triggers faster-than-expected inflation in advanced economies, and a quicker increase in interest rates.

At the same time, the International Monetary Fund said the cyclical upswing in global economic activity provides "an ideal opportunity" for countries to undertake structural reforms aimed at boosting productivity and building resilience against downside risks.

The International Monetary Fund says US tax reform and its associated fiscal stimulus will give a temporary boost to the USA economy, which will have a spillover effect for Canada and Mexico.

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