Trump’s tax reform, which passed late last year, the Tax Cuts and Jobs Act, is now projected to push the GDP growth even higher even the most generous estimates. The International Monetary Fund, a global economic development organization, has analyzed the impact of the bill and expects GDP to grow by 2.7% in 2018 alone.
The IMF had, in its previous reports, projected a GDP increase of 2.3% in the year 2018 and 1.9% in 2019. The organization is now projecting a GDP increase by 2.7% in 2018 and 2.5 in 2019.
“The growth forecast for the United States has been revised up given stronger than expected activity in 2017, higher projected external demand, and the expected macroeconomic impact of the tax reform, in particular the reduction in corporate tax rates and the temporary allowance for full expensing of investment,” the report said. “The tax reform is therefore anticipated to stimulate near-term activity in the United States.”
The findings also go on to show that most of these stimuli are driven by the drastic slashing of corporate tax rates down to 21%.
“The U.S. tax policy changes are expected to stimulate activity, with the short-term impact in the United States mostly driven by the investment response to the corporate income tax cuts,” the report stated. “The effects of the package on output in the United States and its trading partners contribute about half of the cumulative revision to global growth over 2018-19.”
The study further goes on to find that the tax reforms in the United States and the fiscal stimulus that flows out from that will spillover much favorably into America’s trading partners internationally —particularly the neighboring countries Mexico and Canada.
The International Monetary Fund also estimated that the higher domestic demands would mute the much responsive inflation and, in turn, the Federal Reserve would have a much faster pace of interest rate hikes.
Also, in addition to the growth in the United States, the IMF goes on to find that global growth went on to increase about 3.7% just in 2017, which is almost a 0.1%age point higher than it was previously projected. The growth rates are expected to continue further in 2018 and 2019, as a global growth is revised up to 3.9% for both these years.
“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,” said Maurice Obstfeld, economic counselors at the IMF. “This short-term growth boost will have positive, albeit short-lived, output spillovers for U.S. trade partners, but will also likely widen the U.S. current account deficit, strengthen the dollar, and affect international investment flows.”
