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International Monetary Fund cuts South Africa's growth forecast for next two years

23 January, 2018, 02:01 | Author: Melinda Barton
  • International Monetary Fund Managing Director Christine Lagarde delivers opening remarks at the IMF’s 17th Jaques Polak Annual Research Conference

The uptick in China's growth forecast reflects stronger demand for exports, the IMF said, although Maurice Obstfeld, the fund's director of research, pointed out that the economy is still headed for slower expansion.

The Fund revised up its predictions for global economic growth in 2018 and 2019 by 0.2 percentage points to 3.9%, citing "increased global growth momentum and the expected impact of the recently approved USA tax policy changes".

It is true that impact of braking is controlled: it goes from 3.1% registered in 2017 to 2.4% this year, and for 2019 economy will grow slightly more than expected, up to 2.1%, one tenth above what was calculated in October, probably under premise that Incertidu Name policy will have remitted.

Growth rate projections for both 2018 and 2019 remain unchanged since its October 2017 WEO projections.

But markets have rallied since Deputy President Cyril Ramaphosa's election as the ruling African National Congress (ANC) leader in December, as investors have warmed to his promises to root out corruption and kick-start economic growth.

In contrast with the United Kingdom downgrade, the USA outlook for 2019 is upgraded from 1.9 per cent to 2.5 per cent, Germany from 1.5 per cent to 2 per cent and Canada from 1.7 per cent to 2 per cent.

The Fund cited "increased global growth momentum and the expected impact of the recently approved United States tax policy changes" for its fresh optimism.


It has told policymakers that the current cyclical upswing provides an "ideal opportunity" for reforms.

Mr Obstfeld said: "As the year 2018 begins, the world economy is gathering speed". The IMF remains optimistic and is expected to foreshadow faster growth across all regions in today's report. High-frequency hard data and sentiment indicators point to a continuation of strong momentum in the fourth quarter.

"Global economic activity continues to firm up".

The U.S. tax overhaul, particularly corporate income tax cuts, and associated fiscal stimulus will likely promote investment and improve the country's performance temporarily, driving up its demand for imports and benefiting trading partners such as Canada and Mexico, the International Monetary Fund said.

On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence.

The International Monetary Fund also estimates that higher domestic demand will mute the response of inflation and, in turn, the Federal Reserve will have a faster pace of interest rate hikes.

"Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive". In an environment of financial market optimism, ensuring financial resilience is imperative, the report said. Markets expect prices to gradually decline over the next 4-5 years.

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