WASHINGTON – The International Monetary Fund on Monday forecast Japan’s economy will grow 1.2 percent this year, up 0.5 percentage points from its October estimate, as a broad-based global recovery has gathered steam.
In its latest World Economic Outlook, the IMF raised its global growth projection by 0.2 points to 3.9 percent in 2018 and by 0.2 points to 3.9 percent in 2019, partly due to the expected impact of U.S. tax cuts introduced by President Donald Trump’s administration.
“As the year 2018 begins, the world economy is gathering speed,” IMF chief economist Maurice Obstfeld said. “The recent U.S. tax legislation will contribute noticeably to U.S. growth over the next few years, largely because of the temporary exceptional investment incentives that it offers.”
The Washington-based institution raised its forecast for U.S. growth by 0.4 points to 2.7 percent this year and by 0.6 points to 2.5 percent next year, citing the expected impact of the tax reform — especially a cut in the corporate tax rate to 21 percent from 35 percent.
The 2019 growth projection for Japan moved to 0.9 from 0.8 percent. However, that still represents a slower pace of growth from the estimated 1.8 percent expansion in 2017.
“The growth forecast for Japan has been revised up for 2018 and 2019, reflecting upward revisions to external demand, the supplementary budget for 2018, and carryover from stronger-than-expected recent activity,” the IMF said.
China’s growth estimate was lifted to 6.6 percent this year from 6.5 and to 6.4 percent next year from 6.3, an upgrade that also reflects stronger external demand.
The growth forecast for the 19-nation eurozone was revised up 0.3 points to 2.2 percent in 2018 and 0.3 points to 2.0 percent in 2019 due to the stronger momentum in domestic demand and higher external demand.
The estimate for five Association of Southeast Asian Nations members — Indonesia, Malaysia, the Philippines, Thailand and Vietnam — was up 0.1 point to 5.3 percent this year, while 2019 was unchanged from October at 5.3 percent.
In reflection of brisk global trade, growth in trade of goods and services across the world was revised up 0.6 points to 4.6 percent in 2018 and 0.5 points to 4.4 percent in 2019, according to the IMF.
“Our view is that the current upturn, however welcome, is unlikely to become a ‘new normal’ and faces medium-term downside hazards that likely will grow over time,” Obstfeld said.
The IMF cited geopolitical tensions, such as the rising nuclear threat posed by North Korea and faster-than-expected monetary tightening in the United States and Europe, as risk factors that could affect an otherwise sound outlook for the world economy.
“A possible trigger is a faster-than-expected increase in advanced economy core inflation and interest rates as demand accelerates,” it said.
“Inward-looking policies, geopolitical tensions, and political uncertainty in some countries also pose downside risks.”
At the same time, the IMF said the cyclical upswing in global economic activity provides “an ideal opportunity” for countries to undertake structural reforms aimed at boosting productivity and building resilience against downside risks.