US, global growth estimates on the rise

Expectations for U.S. growth this year are getting a boost from the newly implemented tax cuts, according to a February analysis.

The economy is expected to expand at a 2.7 percent pace in 2018, an increase from a November forecast of 2.3 percent, Moody’s Investors Service said on Tuesday in its latest update.

Yet even the faster rate of growth falls short of the 3 percent target the White House Council of Economic Advisers forecasting for 2018 and several years beyond in a report released last week. 

The forecast also expects faster global economic growth, which will peak in 2018, driven by improvement in advanced economies.

{mosads}Moody’s predicts that Group of 20 economies, including Japan, Germany, South Korea and Russia, will grow at a 3.4 percent pace this year and 3.2 percent in 2019, up from November’s views of 3.2 percent and 3.1 percent, respectively.

The euro area is posting its best economic performance since the 2012 debt crisis.

Risks to the global economic outlook hinge on U.S. trade policy and financial markets.

“We believe that the risk of a renewed emphasis on protectionism in the U.S. has increased since last year,” the report said.

“Uncertainty surrounding the future of NAFTA will continue to weigh on investment and growth, particularly for Mexico in 2018.”

The United States, Mexico and Canada are in Mexico City this week for the seventh round of North American Free Trade Agreement negotiations. 

President Trump has repeatedly threatened to leave the agreement.

Earlier on Tuesday, Senate Finance Committee Chairman Orrin Hatch (R-Utah) told reporters that he is concerned that Trump might withdraw from the three-nation deal “because we can’t afford that.”

The Moody’s report said a financial tightening from a correction in asset prices “will have little impact on the fundamental health of the U.S. or global economy.”

Gradually rising inflation will prompt tighter monetary policy that will moderate growth rates in 2019.

There is a new concern though in the U.S. bond market will increase Treasury issuances to “fund wider deficits” from tax cuts and larger budgets. 

“The recent financial market volatility does not alter our U.S. and global growth outlook,” the report said.

“We view the recent correction in the global stock and bond markets against the backdrop of stronger growth and the inevitable normalization of interest rates in advanced economies.”