Lower Manhattan, New York City, Photo : King of Hearts via Wikimedia Commons
Donald Trump’s fiscal stimulus and spending plans could help fuel the world economy, which is showing signs of improvement with 2.7 percent growth after years of sluggish recovery, the World Bank said Tuesday.
In its 2017 Global Economic Prospects report, the Bank says fiscal stimulus in major economies—particularly in the United States—could generate faster domestic and global growth than projected.
The Bank expects the United States economic growth to pick up to 2.2 percent, as manufacturing and investment growth gain traction after a weak 2016.
At the same time, the report cautions that rising trade protection could have adverse effects.
“However, the new administration has signaled intentions to pursue more expansionary fiscal policies, including tax cuts and measures to upgrade infrastructure, which could lead to stronger growth in the short term,” the report notes.
In general, the report reckons, a fiscal stimulus of 1 percent of GDP could be expected to raise U.S. GDP by between 0.7 and 1.5 percent after 2 years, depending on the amount of remaining economic slack and the reaction of monetary policy authorities
“In terms of the proposals suggested by the new U.S. administration, simulations indicate that the planned reduction in corporate and personal income taxes could—if fully implemented and without consideration for other policy changes— increase U.S. GDP growth projections to 2.2-2.5 percent in 2017 and 2.5-2.9 percent in 2018.”
Estimates vary depending on the timing of the tax cuts, the reaction of monetary policy authorities, and how businesses and households adjust their expectations to policy changes, the report says.
“Given limited details to date about the overall scope of all fiscal measures that the new administration plans to implement, including plans to stimulate infrastructure investment and cuts in other federal government outlays, it is difficult to rigorously examine their net effect on the outlook for the U.S. economy.
“Changes in business regulations could also support private-sector activity, while a relaxation of environmental standards could have important sectoral implications.”
Regarding implications of disengaging trade moves, the report says “if implemented, plans to retreat from trade agreements or to raise tariffs and trade barriers could lead to retaliatory action and have negative effects on the outlook for the U.S. economy.
“The renegotiation of NAFTA could have particularly significant effects on regional trade and industrial prospects.”
