Global economic growth is continuing to gather pace, with growth now projected to hit 3.9% both this year and in 2019, according to the latest figures from the International Monetary Fund (IMF).
In its latest World Economic Outlook report, the IMF says the global economy is continuing to “firm up”, with growth of 3.7% in 2017, 0.1 percentage point higher than predicted last autumn.
The organisation says the figures reflect increased global growth momentum and the expected impact of US president Donald Trump’s tax cuts.
But it warns the recovery will run out of steam unless structural economic reforms are made – and that the next recession could be “closer than expected”.
Tax cut boost
“The US tax policy changes are expected to stimulate activity, with the short-term impact in the US mostly driven by the investment response to the corporate income tax cuts,” the report states.
US growth is predicted to run at 2.7% this year and 2.5% in 2019, an average of 0.5 percentage points higher than predicted, with the boost from the tax cuts expected to continue through 2020.
In emerging and developing Europe, where growth in 2017 is now estimated to have exceeded 5%, activity in 2018 and 2019 is projected to remain stronger than anticipated, lifted by a higher growth forecast for Poland and especially Turkey.
Eurozone growth up 0.3%
Growth in the eurozone is slated to rise 0.3% more than expected in both 2018 and 2019 at 2.2% and 2.0% respectively.
The forecast for the UK remains the same in 2018 and 2019 at 1.5%, though the forecast for 2019 is down 0.1% from the October 2017 projection.
Emerging and developing Asia – which account for more than half the world’s growth – will grow at roughly 6.5% over 2018–19, broadly the same pace as in 2017.
Growth in China is predicted to be 6.6% in 2018, 0.1% higher than expected, but is expected to fall to 6.4% in 2019, and slow gradually thereafter.
Japan’s growth has seen a strong upward revision of 0.5% for 2018, with projections of 1.2% and 0.9% for 2018 and 2019.
Not the ‘new normal’
However, IMF chief economist Maurice Obstfeld says the strong global upturn is not the ‘new normal’, and warns against complacency.
“Political leaders and policy makers must stay mindful that the present economic momentum reflects a confluence of factors that is unlikely to last for long,” he says in a blog coinciding with the report’s publication.
“The global financial crisis may seem firmly behind us, but without prompt action to address structural growth impediments, enhance the inclusiveness of growth, and build policy buffers and resilience, the next downturn will come sooner and be harder to fight.”
Obstfeld says every government should be asking itself three questions:
- How can we raise economic efficiency and output levels over the longer term?
- How can we support economic resilience and inclusiveness while reducing the likelihood of an abrupt slowdown or another financial crisis?
- Do we have the policy tools we will need to counter the next downturn?
Run out of steam
He says the strong global recovery has been triggered by policies such as low interest rates and quantitative easing, but that it will run out of steam unless fundamental reforms are made.
“Perhaps the over-arching risk is complacency,” he says. “While the current conjuncture might appear to be a sweet spot for the global economy, prudent policymakers must look beyond the near term.
“No matter how tempting it is to sit back and enjoy the sunshine, policy can and should move to strengthen the recovery.
“The next recession may be closer than we think, and the ammunition with which to combat it is much more limited than a decade ago, notably because public debts are so much higher.”