The Trump administration’s tax reforms will accelerate global economic growth, according to the latest forecast of the International Monetary Fund (IMF).
Total economic output for the world will grow 3.9 percent in 2018 and 2019, after adjusting for inflation. That would be the strongest year for global growth since 2011 and represents an upward revision of 0.2 percent since the IMF’s forecast in October.
When the IMF released its Global Economic Outlook in October, it assumed that U.S. tax policies would remain unchanged. In other words, it assumed Republican efforts to pass tax reform would fail.
The changes to the U.S. tax code are expected to be responsible for “about half” of the upward revision, the IMF. Much of that will arise from lower corporate income tax rates. The IMF estimates that lower rates will lead to an acceleration of business investment. As well, a larger federal budget deficit will stimulate the economy and boost U.S. growth, according to the IMF.
The boost to U.S. growth will be significant. In the IMF’s previous forecast, it saw the U.S. economy expanding by 2.3 percent in 2018 and 1.9 percent in 2019. Now those figures have been revised up to 2.7 percent in 2018 and 2.5 percent in 2019.
A stronger U.S. economy will also boost the economies of America’s trading partners, especially Mexico and Canada. According to the IMF, Mexico’s economy will experience an additional 0.4 percent growth this year and 0.7 percent growth next year, thanks to the changes in U.S. taxes. Canada’s growth will be 0.2 percent higher this year and 0.3 percent higher next year.
The IMF says that the economic growth benefits of the tax overhaul will fade after 2022, largely because many of the tax cuts are scheduled to expire. If those tax cuts are extended or made permanent, however, that could extend the period of accelerated growth.