Donald Trump’s Tax Cuts Could/Will Jump-Start Global Economy
US President Elect Donald Trump’s tax cuts and spending plans could deliver a strong shot in the arm to the US economy, lifting growth around the world, although uncertainty about his trade policies adds to the risks, that according to the World Bank (WB).
The Trump Admin could squander the economic gains of fiscal stimulus if it imposes new trade barriers that provoke retaliation by other countries, the Washington-based development lender said Tuesday in the latest update to its global economic outlook.
Now it is too early to assess what the net impact will be of Donald Trump’s economic policies, the World Bank said.
Accordingly, it left its forecast for US growth this year and next unchanged, at 2.2 and 2.1%, respectively. The outlook does not incorporate the expected effect of Donald Trump’s policy proposals, according to the report.
The bank projects the world economy will grow 2.7 percent in 2017, down 0.1 percentage point from its forecast in June. Stalling trade, weak investment and heightened policy uncertainty have dampened global economic activity, pushing growth down to an estimated 2.3 percent last year — the slowest rate since the financial crisis.
WB estimates global growth will pick up to 2.9% this year, also down 0.1% from its June call.
The development lender sees the Eurozone expanding at a 1.5% rate this year with uncertainty lingering as the UK starts negotiations to withdraw from the EU, which will/may weigh on growth this year and next. Japan is seen growing 0.9% this year, while China’s output is set to expand 6.5%+, WB said.
US growth could accelerate to as much as 2.5% this year and 2.9% in Y 2018 if the Trump Admin follows through on a pledge to cut the corporate income-tax rate from 35 to 15%, and pare individual rates, according to WB estimates.
“When you have this combination of tax cuts, you have a positive outcome on investment and personal consumption,” Ayhan Kose, director of the WB’s Development Prospects Group, said in an interview.
A US pickup on that scale would boost global growth by 0.1% in Y 2017 and at least 0.3% next year, depending on the timing of the tax cuts and the response of the Fed, according to the development lender.
The World Bank said Donald Trump’s plan to boost infrastructure spending could also lift growth, but it cautioned that the benefits could be offset if overall federal spending falls.
The US is the biggest trading partner for about 25% of the world’s nations.
That being the case, efforts by the US to renegotiate trade deals and impose new barriers could set back the global economy, the World Bank said.
President Elect Donald Trump, who takes the Oval Office on January 20th, focused on trade during his campaign for President, saying he and his Team will rethink trade relations with China, renegotiate or withdraw from the North American Free Trade Agreement (NAFTA) and keep the US out of the Trans-Pacific Partnership agreement (TPP).
“Whenever a country imposes a trade restriction, on the other side of the table the country might impose policies as well, and that could escalate the conflict,” Mr. Kose said.
We wait, we see…but, I am hanging with President Donald Trump.
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