Two of great distinctive signs that have crystallized economic policy of Donald Trump, great tax cut and protectionist turn in trade, have ignited alarms of International Monetary Fund, which this Tuesday starts its days of Spring in Washington. The global economy grows at a steady pace, with a forecast of 3.9% for both 2018 and 2019, according to newly published estimates. And big engines — USA, China, eurozone, and Japan — are at forefront of demonstration. But economic struggle between first two is one of great risks in sight.
There is no great advanced economy in world for which IMF expects as much expansion as it does for US. The GDP will grow by 2.9% this year, which is a review of only two tenths compared to what was expected last January, but up to six tenths relative to October forecasts at last summit of Fund. What has happened between a forecast and or is largest tax-lowering of last 30 years in United States, only comparable to that of Reagan era. The cut, which rewards primarily companies, adds a 1.5 trillion in 10 years and spurs activity in short term, but US push will return below potential level once digested this fiscal stimulus.Click on photo
In addition, report warns of effects on distribution of wealth in a country already very unequal. "Changes in US tax policy are expected to aggravate polarization of income, which could affect political climate in future political choices," report says.More information
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The fund forecasts growth of 2.4% for eurozone (two tenths more than in January), it maintains 1.2% for Japan, raises in a tenth forecast of China (up to 6.6%) and places first economy, American one, in quoted 2.9% (it moderates to 2.7% in 2019). But from re begins a string of footnotes and warnings of future that makes present spirit seem a kind of passing apoosis.
"That large economies are flirting with a trade war at a time of broad economic expansion may seem paradoxical, especially when such expansion depends on both investment and trade," says IMF chief economist Maurice Obstfeld in his Initial declaration of spring days. These large economies are no or than two largest in world, United States and China, which have exchanged a first round of reduced-volume tariffs but threat of a new round of much more volume.
Washington cries out against US economy's trade deficit of more than 568 billion billion, of which 375 billion correspond to gap with China, whose regime accuses of unfair competition and technology ft. After first tariffs applied to steel and aluminum, bilateral negotiations between trade partners have been activated to reduce that deficit, fund points out, but agency led by Christine Lagarde stresses that most of deficit for American current account is because volume of aggregate spending exceeds total income. Thus, Obstfeld warned, current-account deficit will grow with newly approved fiscal reform, 150 billion of dollars more in 2019, according to fund's calculations.
These medium-term challenges also include China's slowdown, which will continue as soon as fiscal stimulus and credit growth are reduced.
The fund calls on Governments to promote more inclusive growth, from which all income benefits, and to undertake necessary reforms when economic cycle is still positive. In addition, it warns of tightening of financial conditions, with higher interest rates and credit restrictions.