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OECD sees resurgent US growth boosting global economy

Louisville Assembly Plant employees on the production line in Louisville, Kentucky. Photo: John Sommers II/Reuters

Louisville Assembly Plant employees on the production line in Louisville, Kentucky. Photo: John Sommers II/Reuters

Global growth would pick up faster than previously expected in the coming months as the Trump administration’s planned tax cuts and public spending fire up the US economy, the OECD said yesterday, revising up its forecasts.

In its twice-yearly Economic Outlook, the Organisation for Economic Cooperation and Development estimated global growth would accelerate from 2.9 per cent this year to 3.3 per cent in 2017 and reach 3.6 per cent in 2018.

The Paris-based organisation was slightly more optimistic about the US outlook, with a forecast for growth next year of 2.3 per cent, up from 2.1 per cent in its last set of estimates dating from September.

US growth would pick up further in 2018 to reach three per cent, the highest rate since 2005, as the incoming Trump administration is set to cut taxes on business and households and embark on an infrastructure investment programme.

That would in turn drive the unemployment rate in the world’s biggest economy down from 4.9 per cent this year to 4.5 per cent in 2018, the OECD estimated.

As the US labour market becomes increasing tight and wages rise, the OECD forecast inflation would increase from 1.2 per cent in 2016 to 2.2 per cent in 2018, prompting the Federal Reserve to raise interest rates gradually to two per cent by end-2018. A resurgent US economy would help offset softness elsewhere in the world.

The OECD was slightly less pessimistic about Britain’s outlook than it was in September, as the central bank has helped ease the economic impact of the country’s decision to leave the European Union.

Britain’s economy was seen growing two per cent this year, revised up from 1.8 per cent previously, although the rate would be halved by 2018.

China, which is not a member of the 35-country OECD, was seen slowing from growth this year of 6.7 per cent to 6.4 per cent in 2017, both slightly better than previously expected.

Stronger US import demand was seen offsetting weak Asian trade for Japan, where growth was revised up to 0.8 per cent for this year from 0.6 per cent previously and lifted to one per cent in 2017 from a 0.7 per cent estimate in September.

The euro area’s outlook was also slightly brighter despite uncertainties about Britain’s future relationship with the continent.

Boosted by loose monetary policy, euro area growth was seen at 1.7 per cent this year and 1.6 per cent in 2017 with both years revised slightly higher from the OECD’s September estimates.

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