IMF Boosts U.S. GDP to 2.3% in 2017 and 2.5% in 2018
The International Monetary Fund (IMF) is more bullish on the U.S. and global economy now that Donald Trump is ready to take control of the Oval Office. Thanks to Trump’s $1.0-trillion infrastructure plan and tax cuts, the U.S. is expected to have a wave of solid economic growth. Something that has been lacking of late.
The IMF upgraded its economic forecast for the U.S. economy in 2017 and 2018, saying President-elect Donald Trump’s economic policies will spur economic growth. The IMF said U.S. GDP will grow nearly half a percentage point faster than previously thought over the next two years. In 2017, U.S. GDP is forecast to expand at 2.3% and 2.5% in 2018. (Source: “World Economic Outlook,” International Monetary Fund, January 16, 2017.)
But there is a caveat. IMF officials warned that U.S. economic growth could be in jeopardy if Trump’s bullish protectionist trade proposals set off a trade war with China and Mexico. In fact, the IMF warns that trade wars could be “quite destructive” for the global economy.
Barring any unforeseen trade wars, the IMF kept its overall global forecast unchanged at 3.4% for 2017 and 3.6% for 2018. This represents a slight increase over the 3.1% growth in 2016; which also happened to be the weakest year for growth since the Financial Crisis.
OECD and World Bank Say U.S. Economy Will Grow Faster Too
The IMF’s bullish outlook on a Trump presidency follows upward economic revisions from both the OECD (Organisation for Economic Co-operation and Development) and World Bank.
Back in November, the OECD was one of the first off the block to declare a Trump presidency good for U.S. and global growth. The Paris think tank said Trump’s planned tax cuts and infrastructure spending will help the U.S. economy advance by 2.3% in 2017 and 3.0% in 2018. (Source: “General Assessment of the Macroeconomic Situation,” Organisation for Economic Co-operation and Development, November 27, 2016.)
Strong U.S. growth will spill over to the rest of the world with the global economy projected to increase 3.3% in 2017 and 3.6% in 2018.
In early January, the World Bank said Trump’s tax cuts should help the global economy growth this year and next. The development institute said the global economy would increase by 2.7% in 2017.
Here at home, Trump’s economic action plan could add 0.3% to U.S. growth in 2017 and 0.8% in 2018. As a result, U.S. GDP is forecast to expand 2.5% this year and 2.9% in 2018.
Trump Will Need to Keep His Word
This recently released economic data is below Donald Trump’s promise to raise U.S. GDP to 3.5%. Since the economic recovery began in mid-2009, annual growth has averaged just 2.1%. (Source: “Fact Sheet,” DonaldJTrump.com, September 15, 2016.)
Still, it’s an encouraging sign that the IMF, OECD, and World Bank all believe that Trump’s policies will be good for the U.S. and global economies.
But, for the U.S. to experience exceptional growth, Donald Trump will need to keep his campaign trail promises. Moreover—and all three groups also in agreement—any trade wars could derail these rosy projections.
If Trump fails to follow through on his promises, the OECD believes global growth could be 0.4% weaker than projected in 2017 and 0.6% weaker in 2018. These projections will be even weaker if Trump implements higher tariffs on imports from Mexico and China.
Meanwhile, the IMF believes that restrictions on trade and migration would hurt productivity and incomes, and take a toll on market sentiment.
Some analysts may be skeptical of Donald Trump’s economic forecasts, saying there are too many economic uncertainties out there. The U.S. is faced with an aging population and stagnant growth. Stagnant growth in China, the world’s second biggest economy, could stall.
On top of that, a sudden rise in U.S. inflation means the Fed could raise rates faster than expected. Higher borrowing costs could hit the average American that is heavy in debt, hard. It could also cobble emerging markets with large debt loads.
Analysts may be dubious of “Trumponomics,” but I doubt Trump cares. After all, these are probably the same people who said his chances of winning the presidency were nil.