The International Monetary Fund on Monday revised up its forecast for world economic growth in 2018 and 2019, saying sweeping U.S. tax cuts were likely to boost investment in the world’s largest economy and help its main trading partners.
However, the IMF, in an update of its World EconomicOutlook, also added that U.S. growth would likely start weakening after 2022 as temporary spending incentives brought about by the tax cuts began to expire.
The tax cuts would likely widen the U.S. current account deficit, strengthen the U.S. dollar and affect international investment flows, IMF chief economist Maurice Obstfeld said.
“Political leaders and policymakers must stay mindful that the current economic momentum reflects a confluence of factors that is unlikely to last for long,” Obstfeld told reporters at the World Economic Forum in Davos.
He said economic gains from the tax cuts would be partially paid back later in the form of lower growth as temporary spending incentives, notably for investment, expired and as rising federal debt took a toll.
IMF Managing Director Christine Lagarde pointed to a “troubling” increase in debt levels across many countries and warned policymakers against complacency, saying now was the time to address structural deficiencies in their economies.
Obstfeld said a sudden rise in interest rates could lead to questions about the debt sustainability of some countries and lead to a disruptive correction in “elevated” equity prices.
U.S. President Donald Trump signed Republicans’ massive $1.5 trillion tax overhaul into law in December, cementing the biggest legislative victory of his first year.