The International Monetary Fund (IMF) on Tuesday released the latest update to its World Economic Outlook (WEO), reporting that the global economy grew by 3.8% in 2017 and by 4.0% in the second half of last year. For 2018, the organization is forecasting global growth of 3.9%.
U.S. economic growth is forecast at 2.9% in 2018, up by 0.6 percentage point from the IMF’s October 2017 forecast, a result of “expansionary fiscal policy” in the form of the tax law changes enacted in December. U.S. growth is forecast at 2.7% for 2019, up from an October forecast for 1.9%.
While the good news doesn’t exactly end there, the IMF is looking for the positive momentum in the global economy to peter out and leave a “challenging medium-term outlook” for many countries. There are a several reasons for that.
The advanced economies of North America, Europe and Asia face several hurdles: an aging population, fall rates of labor force participation and low productivity growth. They are unlikely to reach the per capita economic growth rates they enjoyed prior to the global financial meltdown.
IMF economist Maurice Obstfeld also warns of rising global debt levels and significant risks to global trade. Regarding trade, Obstfeld notes:
[T]he prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail global growth prematurely. While some governments are pursuing substantial economic reforms, trade disputes risk diverting others from the constructive steps they would need to take now to improve and secure growth prospects.
That major economies are flirting with a trade war at a time of widespread economic expansion may seem paradoxical—especially when the expansion is so reliant on investment and trade. Particularly in advanced economies, however, public optimism about the benefits of economic integration has been eroded over time by long-standing trends of job and wage polarization, coupled with persistent sub-par growth in median wages. Many households have seen little or no benefit from growth.
In the WEO, the IMF makes special mention of the United States:
In the United States, financial conditions could tighten faster than expected …. Tighter financial conditions in the United States would have spillovers to other economies, including through a reduction in capital flows to emerging markets. Very expansionary fiscal policy in the United States, at a time when the current account deficit is already larger than justified by fundamentals, combined with persistent excess current account surpluses in other countries, is projected to widen global imbalances. … Similarly, changes in US tax policies are expected to exacerbate income polarization, which could affect the political climate for policy choices in the future.
Essentially, growth through 2019 looks solid, with global output rising from 3.8% last year to 3.9% in both this year and next. After that however, the medium-term outlook turns cloudy: “US tax reform will subtract momentum starting in 2020, and then more strongly … starting in 2023.”
For developing and emerging economies the outlook is even weaker:
More than one-quarter of emerging market and developing economies are projected to grow by less than advanced economies in per capita terms over the next five years, and hence fall further behind in terms of living standards.
The full WEO is available at the IMF website and Obstfeld’s comments are posted on the IMF blog.
The #1 Thing to Do Before You Claim Social Security (Sponsor)
Choosing the right (or wrong) time to claim Social Security can dramatically change your retirement. So, before making one of the biggest decisions of your financial life, it’s a smart idea to get an extra set of eyes on your complete financial situation.
A financial advisor can help you decide the right Social Security option for you and your family. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
Click here to match with up to 3 financial pros who would be excited to help you optimize your Social Security outcomes.
Have questions about retirement or personal finance? Email us at [email protected]!
By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.
By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.