The presidency of Donald Trump will have a mixed effect on the global economy, with the United States growing faster but the rest of the world affected by higher interest rates, the managing director of the IMF said on Sunday.
Mr Trump has promised to increase infrastructure spending, reform taxes and deregulate the US economy to help lift economic growth.
“From the little we hear, we have reasons to be optimistic about economic growth in the United States,” Christine Lagarde told the World Government Summit on Sunday in Dubai.
“It is likely that there will be tax reform, it is likely there will be additional investment in infrastructure and as a result of that it is very likely that growth will be up in the US.”
The fund revised upward its forecast for the US economy last month, projecting 2.3 per cent growth this year and 2.5 per cent growth next year. The IMF estimates that US growth was 1.6 per cent last year.
The IMF last month left its global growth forecast unchanged at 3.4 per cent for this year and 3.6 per cent for next year, up from an estimated 3.1 per cent last year.
Higher US interest rates and a strong dollar may have spillover effects outside the US.
“The more worrying news … is that it will have consequences on the rest of the world and we are seeing it and markets have anticipated it,” said Ms Lagarde. “Currency higher, interest rate higher – that is a tightening that is going to be difficult on the global economy and for which economies have to prepare.”
The US Federal Reserve could accelerate the frequency of interest rate increases this year to three times as the economy improves in the US, with low unemployment figures and a pick up in inflation close to the Fed’s 2 per cent goal.
Ms Lagarde, though, expressed concerns about the Trump administration’s attempts to roll back the 2010 Dodd-Frank financial sector reforms, which were introduced in the wake of the 2008 financial crisis.
“I think it is clearly important that the banks, the financial institutions be solid and be not excessively leveraged and be not allowed to do anything they please because they have a particular responsibility and they have a particular benefit as well,” said Ms Lagarde.
dalsaadi@thenational.ae
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