PARIS (Reuters) – Global growth will pick up faster than previously expected in the coming months as the Trump administration’s planned tax cuts and public spending fire up the U.S. economy, the OECD said on Monday, revising up its forecasts.
In its twice-yearly Economic Outlook, the Organization for Economic Cooperation and Development estimated global growth would accelerate from 2.9 percent this year to 3.3 percent in 2017 and reach 3.6 percent in 2018.
The Paris-based organization was slightly more optimistic about the U.S. outlook, with a forecast for growth next year of 2.3 percent, up from 2.1 percent in its last set of estimates dating from September.
U.S. growth would pick up further in 2018 to reach 3.0 percent, the highest rate since 2005, as the incoming Trump administration cut taxes on business and households and embarked on an infrastructure investment program.
That would in turn drive the unemployment rate in the world’s biggest economy down from 4.9 percent this year to 4.5 percent in 2018, the OECD estimated.
As the U.S. labor market becomes increasing tight and wages rise, the OECD forecast inflation would increase from 1.2 percent in 2016 to 2.2 percent in 2018, prompting the Federal Reserve to raise interest rates gradually to 2.0 percent by end-2018.
A resurgent U.S. economy would help offset softness elsewhere in the world.
The OECD was slightly less pessimistic about Britain’s outlook than it was in September, as the central bank has helped ease the economic impact of the country’s decision to leave the European Union.
Britain’s economy was seen growing 2.0 percent this year, revised up from 1.8 percent previously, although the rate would be halved by 2018.
China, which is not a member of the 35-country OECD, was seen slowing from growth this year of 6.7 percent to 6.4 percent in 2017, both slightly better than previously expected.
Stronger U.S. import demand was seen offsetting weak Asian trade for Japan, where growth was revised up to 0.8 percent for this year from 0.6 percent previously and lifted to 1.0 percent in 2017 from a 0.7 percent estimate in September.
The euro area’s outlook was also slightly brighter despite uncertainties about Britain’s future relationship with the continent.
Boosted by loose monetary policy, euro area growth was seen at 1.7 percent this year and 1.6 percent in 2017 with both years revised slightly higher from the OECD’s September estimates.
(Reporting by Leigh Thomas; Editing by Mark Trevelyan)