IMF Downgrades US, UK Growth, Upgrades Eurozone

Says US fiscal policy will be less expansionary than previously assumed.

The International Monetary Fund (IMF) has downgraded its growth forecast for the US and the UK for 2017, while upgrading its forecast for the European Union, Canada, Japan, and China.  

The IMF said it now expects US growth of 2.1% for 2017, down from its previous guidance, issued in April, that predicted growth of 2.3%. It also lowered its forecast for 2018 to 2.1% from 2.5%.

“While the markdown in the 2017 forecast reflects in part the weak growth outturn in the first quarter of the year,” said the IMF, “the major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy changes.”

The IMF also downgraded its expectations for growth in the UK to 1.7% from 2.0%, but maintained its 2018 forecast at 1.5%.

However, the US and UK downgrades were more the exception than the norm, as the IMF upgraded its 2017 growth projections for many EU countries, including France, Germany, Italy, and Spain, where Q1 growth generally exceeded expectations.

“This, together with positive growth revisions for the last quarter of 2016 and high-frequency indicators for the second quarter of 2017, indicate stronger momentum in domestic demand than previously anticipated,” said the IMF.

For the overall Euro Area, the IMF upgraded its growth forecast to 1.9% in 2017 and 1.7% in 2018, from 1.7% and 1.6%, respectively. For Germany, it raised its forecast to 1.8% in 2017 and 1.6% in 2018, from 1.6% and 1.5%, respectively, while France was upgraded to 1.5% and 1.7% in 2017 and 2018, up from 1.4% and 1.6%, respectively.

The IMF gave its biggest revisions in growth guidance among EU countries to Italy and Spain. The IMF raised its 2017 growth forecast for Italy to 1.3% from 0.8%, while upgrading its 2018 forecast to 1.0% from 0.8%. Meanwhile, the IMF upgraded Spain’s 2017 growth to 3.1% from 2.8%, and raised its 2018 guidance to 2.4% from 2.1%.

“The pickup in activity in the Euro area, with buoyant market sentiment and reduced political risks, could be stronger and more durable than currently projected,” said the IMF. “On the downside, protracted policy uncertainty or other shocks could trigger a correction in rich market valuations, especially for equities, and an increase in volatility from current very low levels.”

The growth forecast was also upgraded for Canada where “buoyant domestic demand” boosted first-quarter growth to 3.7%, and “indicators suggest resilient second-quarter activity.” While Canada saw the sharpest upgrade for 2017, as the IMF raised its forecast to 2.5% from 1.9%, it lowered its 2018 forecast by 0.1% to 1.9%. Forecasts were also raised slightly for Japan, “where private consumption, investment, and exports supported first-quarter growth,” said the IMF.

Meanwhile, the IMF slightly upgraded China’s growth for 2017 and 2018 to 6.7% and 6.4%, respectively, from 6.6% and 6.2%. The IMF left its 2017 and 2018 forecast for global growth unchanged at 3.5% and 3.6%, respectively.



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