DUBAI: International Monetary Fund (IMF) chief Christine Lagarde on Sunday voiced optimism for US economic growth under President Donald Trump but warned it could herald trouble for the rest of the world.
“From the little we know, and I will insist on the little we know, because this is really work in progress... but from the little we hear, we have reasons to be optimistic about economic growth in the US,” Lagarde said at the annual World Government Summit (WGS) in Dubai.
Lagarde predicted tax reform and more investment in infrastructure were both likely under Trump, whose Thursday teaser of fresh tax cut proposals pushed Wall Street stocks to new records.
The Dow, Nasdaq and S&P 500 all closed up 0.6 percent Thursday after the new US president promised a “phenomenal” tax cut plan would be unveiled within two or three weeks.
Yet the IMF chief did not mince words in raising concern over the global repercussions of a boon in the US economy.
“Now that is the good news,” said Lagarde. “The more worrying news, if you will, is that it will have consequences on the rest of the world, and we are seeing it.”
She highlighted the strength of the dollar against other currencies, predicting a hike in interest rates regulated by the Federal Reserve.
“That is a tightening that will be difficult on the global economy and for which economies will have to prepare,” said Lagarde.
The IMF in January raised the US growth estimate a tenth of a point this year to 2.3 percent, and four-tenths of a point to 2.5 percent for 2018.
The World Bank, meanwhile, has not changed its forecasts for the US, citing the uncertainty of Trump’s policy plans.
Both the IMF and World Bank continue to point to uncertainty as a mitigating factor for economic projections in the US.
The two organizations are expected to announce clearer forecasts at the World Economic Outlook in April.
Lagarde, whose organization has backed taxation in the largely energy-rich and tax-free member countries of Gulf Cooperation Council (GCC), was also unwavering in her support for the impending regional five percent value-added tax (VAT).
“Whether you want to talk about education, whether you want to talk about roads... to have public investment, you need public funding,” said the IMF chief.
“Now if that funding is reduced because the price of the barrel has gone down... that money needs to be found somewhere else, and as a result there has to be a degree of taxation.”
The IMF in 2016 had recommended the GCC states impose revenue-raising measures, including excise and VAT, to adjust to lower crude prices, which have slowed regional growth.
The GCC countries, which include Saudi Arabia and the United Arab Emirates (UAE), have already agreed to implement selective taxes on tobacco, and soft and energy drinks this year.
A broader five percent VAT is slotted to take effect across the Gulf on Jan. 1, 2018.