IMF Worries US Tax Cut Reform Disturbs Global Economic Growth

; posted on
January 31st, 2018

Christine Lagarde, the Managing Director of the International Monetary Fund, expressed the worrying concern during the World Economic Forum in Davos that the favourable tax reduction under US tax reform could be a threat to the stability of global growth.

Shorter-term Engine but Increased Serious Risk

Lagarde confirmed the positive aspects of the US tax reform in short term, that it could boost growth and productiveness, but “that has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available,” according to Lagarde. The global growth forecasted by the IMF in both 2018 and 2019 is 3.9%, but this is temporary as well as insufficient for jobs. In addition, the growth varies among regions, with bigger and major economies performing better. All these could trigger insufficient financial stability and equality, with the lack of international cooperation and the possibilities of geopolitical risks.

Potential Worse US Budget Deficit

In the long run, the IMF points out that a lighter tax burden could worsen the US budget deficit with heavier governmental debt. This gives rise to an upward trend in American interest rates thus impedes the long-term growth. Consequently, the stock market is likely to be exposed to an unexpected and sudden fall.

Sources: The Guardian, ABC

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