Economic Report: IMF lifts U.S. growth outlook on tax-cut view

The IMF has lifted its estimate for U.S. economic growth.

The International Monetary Fund on Tuesday again lifted its estimate for U.S. economic growth for this year and next, even as the international agency warned that tax cuts will just bring a momentary jolt to the world’s biggest economy.

In its world economic outlook, the IMF lifted its U.S. growth estimate for 2018 to 2.9% and its 2019 estimate to 2.7%, both increases of two-tenths of a percentage point. It kept unchanged its world economic output estimate from January at 3.9% for both this year and next year.

The IMF pointed out the Tax Cuts and Jobs Act, the $1.5 trillion tax cut law, gives a temporary allowance for companies to fully expense investment. This is a strong incentive, the IMF finds, for companies to push along investment projects.

That, in turn, should lift employment, which should increase consumption and also prices — which means the Federal Reserve will also lift interest rates more aggressively.

However, momentum will be reduced starting in 2020 and then more strongly when the investment expensing begins to be phased out in 2023, the IMF finds.

The IMF delivered a similar message for global growth more broadly, that times are good at the moment but expected to cool down in a few years.

“The current favorable juncture offers a window to enact policies and reforms that protect the upswing and raise medium-term growth to the benefit of all—strengthening the potential for higher and more inclusive growth, building buffers that will help deal more effectively with the next downturn, improving financial resilience to contain financial market risks, and fostering international cooperation,” the IMF said.

Area Estimated 2018 GDP growth Estimated 2019 GDP growth
U.S. 2.9% 2.7%
Euro area 2.4% 2%
Japan 1.2% 0.9%
U.K. 1.6% 1.5%
Canada 2.1% 2%
China 6.6% 6.4%
India 7.4% 7.8%
Brazil 2.3% 2.5%
Russia 1.7% 1.5%
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