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Financial News: IMF Deputy Chief Says US Outlook Uncertain Due

IMF Deputy Chief Says US Outlook Uncertain Due To Vague Policy

02/02/2017 - 07:29:00 (RTTNews)

(RTTNews) - The US economic outlook remains uncertain due to the vague policy stance of the new administration and Asia faces downside risks such as financial volatility and rising protectionism in advanced economies, International Monetary Fund Deputy Managing Director Mitsuhiro Furusawa said Thursday.

In a January update to its World Economic Outlook, the IMF projected global growth to pick up to 3.4 percent this year from 3.1 percent in 2016. World growth was seen gaining further momentum to reach 3.6 percent in 2018.

"Our current forecast is based on the assumption of a changing policy mix in the US, especially an expected near-term fiscal stimulus," Furusawa said in a speech in Tokyo.

The Washington-based lender also raised the US growth projection to 2.3 percent this year and 2.5 percent in 2018.

"But given the uncertainty about the new administration's policy stance, these numbers remain uncertain," the IMF top official said.

Furusawa noted that emerging economies continue to drive global growth, though the growth outlook for several advanced economies were revised upward.

The near-term outlook remains strong for Asia, he said, noting that accommodative policies in the region will support domestic demand, offsetting weak export growth.

The IMF estimated Asia's GDP growth increasing to 5.3 percent this year and 2018 from 5.2 percent in 2016.

"Despite the stronger near-term outlook, downside risks dominate," Furusawa cautioned.

The expectation of continued fiscal policy support prompted the lender to raise the growth projections for China. But, Furusawa pointed out that the economy's excessive reliance on policy stimulus was a risk as it sustains growth in the near term, but at the cost of a continued rise in the credit to GDP ratio.

Meanwhile, the ongoing rebalancing of China's economy toward consumption and services pose upside risks to the outlook, he added.

Risks faced by Asia include further tightening of financial conditions since the Trump win and sustained depreciation of currencies against the US dollar, he said.

Furusawa also warned that capital inflows have been reversed and rising protectionism in advanced economies could affect Asia's prosperity.

"Uncertainties could contribute to financial volatility in the coming months," the IMF official said.

"Flexible exchange rates and timely use of macro-prudential policies, together with stronger reserves buffers, will be helpful, as has been the case during recent episodes of capital flow volatility."

He also stressed on the need for a pro-growth fiscal policy that involves scaling up development spending.

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