January 23, 2018.
IMF Says Global Growth Picking Up as U.S. Tax Cuts Take Hold
The International Monetary Fund warned policymakers to be on guard for the next recession even as it predicted global growth will accelerate to the fastest pace in seven years as U.S. tax cuts spur businesses to invest. The fund raised its forecast for world expansion to 3.9 percent this year and next, up 0.2 percentage point both years from its projection in October. That would be the fastest rate since 2011, when the world was bouncing back from the financial crisis. The strengthening recovery offers a “perfect opportunity now for world leaders to repair their roof,” IMF Managing Director Christine Lagarde told reporters Monday in Davos, Switzerland where the World Economic Forum is meeting. “Growth in our view needs to be more inclusive.”
Bonds Advance as Stock Rally Sputters; Oil Climbs: Markets Wrap
Government bonds advanced after the Bank of Japan signalled the age of easy money isn’t over yet, while U.S. stock futures and European equities pared a gain as optimism around corporate earnings and the end of the shutdown began to ebb. Gold and oil rose. Tsunami warnings for the West Coast of North America added to the downbeat mood that crept into the markets as U.S. investors started their day. Futures for the S&P 500 Index edged lower and the Stoxx Europe 600 Index traded fractionally higher as a drop in miners held the gauge back. The greenback strengthened against the euro and pound in the wake of President Donald Trump’s first major move on foreign trade. The yen rose, erasing an earlier drop when the BOJ damped speculation it’s close to reducing monetary stimulus. The MSCI Asia Pacific and Hong Kong’s Hang Seng indexes posted fresh records.
Germany’s Economy Needs More Investment
Few countries attract as much disdain from economists as Germany. Berlin is accused of running an excessively prudent budget and German companies of paying their workers too little: This stinginess — so the accusation goes — has contributed to global instability by making it harder for Germany’s euro-zone partners to climb their way out of the crisis. The criticisms, which go back about a decade, seem harder to sustain now: German wages are rising again, and while the government is running a surplus, it is more difficult to make the case for greater spending during an economic expansion. The problem is that Germany needs to make up now for what it failed to do in the past: Wages must not only increase, but compensate for years of excessive moderation. This sizable gap in public and private investment needs to be filled, a worthy focus for the new coalition government. A boost in German consumption and investment would create some additional demand for Germany’s euro-zone partners. Greater investment in companies or infrastructure would also lift German productivity, which has been far from impressive over the past decade. The great debate over German economic policymaking was held at a conference in Frankfurt last week, jointly run by the International Monetary Fund and the Bundesbank. The case for a change of paradigm in Berlin was eloquently made by Maurice Obstfeld, the IMF’s chief economist, who — alongside his predecessor Olivier Blanchard — has long argued that Germany should reduce its external surplus to improve financial stability. Germany’s current account surplus stood at nearly 8 percent of gross domestic product last year. According to the IMF, this is nearly 4.5 percentage points higher than it should be. Roughly a third of this excessive external surplus is the result of overly tight fiscal policy.
Global Optimism Bypasses U.K. Yet Again in Latest IMF Upgrades
A rising tide lifts most boats, according to the latest International Monetary Fund forecasts, which saw upgrades for almost every major economy except the U.K. In an update to its World Economic Outlook, the IMF lifted its global growth prediction to 3.9 percent for both this year and next. That would be the strongest expansion since 2011. Excluding the U.K., there were upward revisions for every Group of Seven nation, while projections for China were also raised. For the U.K., growth is seen at 1.5 percent in both years. That’s unchanged for 2018 and marks a modest 0.1 percent reduction for 2019. It’s not the first time that IMF optimism hasn’t extended to the U.K. In October, its 2017 estimate for the economy was left unchanged amid upgrades elsewhere.
India Set Sights on $5 Trillion Economy by 2025, Modi Says
India is working toward a five trillion dollar economy by 2025, Prime Minister Narendra Modi said today at the opening session of the World Economic Forum in Davos, as he courted global investors to Asia’s third largest economy. “India is removing the red tape and laying out the red carpet,” said Modi, the first Indian prime minister in two decades to attend the high-level forum. “Almost all areas of our economy have been opened to foreign direct investment,” he said. “More than 1400 archaic laws that were an obstacle to doing business” have been abolished in the last three years. Modi is spearheading efforts to attract foreign investment to kick start growth in India’s $2.3 trillion economy, which is forecast to expand at the lowest since 2014. This month his government eased restrictions on foreign direct investment in several sectors, including single brand retail, real estate brokerages and power exchanges. He allowed overseas airlines to invest in state carrier Air India Ltd. Earlier Modi relaxed rules on investment in defense, construction, insurance, pension and other sectors resulting in highest ever foreign investment inflows in the year ended March 2017.