International Monetary Fund raises Italy growth forecasts

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The IMF released World Economic Outlook update at the World Economic Forum in Davos. The region continues to account for over half of world growth.

Global growth, which had languished in the previous years, is steaming ahead as the United States economy continues to expand at better-than-expected rates and Asia and Europe continue to recover from the economic slump that marred the past years.

The pace of growth of the advanced nations was 1.7% in that year and is expected to have advanced to more than 2% for last year, this year and next. But the fact that forecast for China's 2018 and 2019 had been revised upward by 0.1 percentage point each from its earlier prediction did contribute to Asia's growth compared to previous estimates.

The US tax policy changes are expected to stimulate activity, with the short-term impact in the US mostly driven by the investment response to the corporate income tax cuts.

Lagarde urged countries to take advantage of healthy growth to enact reforms that will make their economies more efficient to spread prosperity to those who have been left behind.

"As for the U.S., whatever output impact its tax cut will have on an economy so close to full employment will be paid back partially later in the form of lower growth, as temporary spending incentives (notably for investment) expire and as increasing federal debt takes a toll over time", he added.

An important feature of the tax reforms is the reduction in the corporate tax rate from 35 percent to 21 percent, which gives USA companies an incentive to bring back their holdings stashed away overseas.

"The current cyclical upswing provides a unique opportunity for structural and governance reforms", the International Monetary Fund said, adding, "policymakers should guard against the temptation to defer reforms and budgetary adjustments for later".

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The 2019 growth projection for Japan moved to 0.9 from 0.8 percent.

By contrast, expansion in Chinese gross domestic product is seen slowing to 6.4% in 2019, from 6.6% in 2018 and 6.8% in 2017.

Further, in 2017, India's growth rate dropped to 6.7 percent.

The IMF noted that if global sentiment remains strong and inflation muted, then financial conditions could remain loose into the medium term, leading to a buildup of financial vulnerabilities in advanced and emerging market economies alike.

On the downside, rich asset valuations and very compressed term premiums raise the possibility of a financial market correction, which could dampen growth and confidence. Shared priorities across all economies include implementing structural reforms to boost potential output and making growth more inclusive.

Current upswing in the global economy "furnishes an ideal moment to act on a range of multilateral challenges", Obstfeld said.

And the absence of worries in the near term could prompt financial market players to look for riskier and more profitable investments "and amplify the buildup of financial vulnerabilities", the International Monetary Fund warned.

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