IMF raises 2017 world growth forecast to 3.5%, Japan to 1.2%

The International Monetary Fund said Tuesday it forecasts world economic growth to rise by 0.1 point to 3.5 percent for 2017, with growth for the United States unchanged at 2.3 percent and that for Japan up 0.4 from its estimate in January to 1.2 percent.

The IMF’s growth estimate for China, the world’s second-largest economy, was up 0.1 point to 6.6 percent.

“The world economy gained speed in the fourth quarter of 2016 and the momentum is expected to persist,” it said in an update of its World Economic Outlook. “Global growth is projected to increase from an estimated 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018.”

According to the Washington-based institution, the Japanese economy is likely to grow 0.6 percent next year, up 0.1 point from the January projection but a deceleration from an estimated 1.0 percent expansion in 2016.

Referring to the envisaged slowdown beyond this year, the updated report cited “the assumed withdrawal of fiscal support and a recovery of imports offsetting the impact of stronger anticipated foreign demand and Tokyo Olympics-related private investment.”

To attain a durable increase in growth and inflation, the report suggested Japan adopt measures such as boosting labor force participation by women and older workers, admitting more foreign workers, improving the provision of capital for new ventures and supporting stronger corporate governance to discourage companies from accumulating excess cash reserves.

As in 2017, the IMF left its forecast of U.S. economic growth unchanged at 2.5 percent in 2018, but the growth rates for 2017 and 2018 are higher than an estimated 1.6 percent in 2016 due to planned fiscal stimulus and an uptick in confidence, especially after Donald Trump’s victory in November’s presidential election.

The Republican president, a former New York real estate mogul, has pledged to stimulate the U.S. economy with tax cuts, deregulation and increased spending on infrastructure.

But the IMF noted uncertainty about U.S. policy actions, including the overall amount and composition of fiscal stimulus, “and their effects on U.S. aggregate demand, potential output, the government budget deficit and the value of the U.S. dollar suggests a wide range of upside and downside risks to the current baseline forecast for the United States.”

Maurice Obstfeld, director of the IMF’s research department, cited uncertainty about Trump’s planned stimulus program and its global ramifications. He also said the U.S. Federal Reserve, which has started monetary normalization, is ahead of the Bank of Japan and the European Central Bank, for which interest rate increases are not yet imminent.

“U.S. fiscal policy still seems likely to turn more expansionary over the next couple of years,” Obstfeld said.

“If the degree of remaining slack in the U.S. economy is small, the result could be inflation and a faster-than-expected pace of interest rate rises, sparking sharp dollar appreciation and possible difficulties for emerging and some developing economies — especially those with dollar pegs or extensive dollar-denominated liabilities.”

Aside from such policy uncertainty, Obstfeld expressed concern about rising waves of protectionism and growing skepticism of international economic integration, in apparent references to Trump’s “America First” agenda and Britain’s decision to leave the European Union.

According to the updated report, China’s 2018 growth rate was revised up by 0.2 point from January to 6.2 percent, but it would mark a further deceleration from an estimated 6.7 percent in 2016.

The upward revision partly reflects “the anticipation of continued policy support in the form of strong credit growth and reliance on public investment to achieve growth targets,” it said.

The eurozone economy is expected to grow 1.7 percent this year, up 0.1 point, and 1.6 percent next year, unchanged, against an estimated 1.7 percent last year.

Britain’s economy, however, is likely to expand 2.0 percent in 2017, up 0.5 point, and 1.5 percent in 2018, up 0.1 point, against an estimated 1.8 percent in 2016.

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