US prospects heavily depend on Donald Trump's tax reform. This is the assessment that emerges from the macroeconomic outlook of State Street Global Advisors, a research (attached in PDF) edited by chief economist Chris Probyn which analyzes the performance of all the main economies of the planet.
Here are some significant passages culled from the outlook.
USA: SUSPENSE FROM THE TAX POINT OF VIEW
“In the absence of stimulus measures, we tend to continue to expect a slight acceleration in growth from the 2,2% estimates for 2017, due to the ongoing reconstruction following the damage caused by hurricanes, with more dynamism in the sectors mining and manufacturing.
However, the general improvement depends on the extent and timing of any cuts in Fed funds rates and possible programs to reduce public spending.
The Republicans have proposed a reduction in the corporate tax to 20%, setting only three tax brackets at 12%, 25% and 35%, and a lowering of the rate of non-taxable corporate income to 25%. This seeks to abolish alternative minimum and property taxes and to eliminate deductible expenses with the exception of interest expense on mortgages and charitable contributions.
Since the cost of these cuts amounts to a whopping $2,4 trillion over ten years (according to the Tax Policy Center), we expect the program to be more modest in scope, at around $0,5 trillion (about 2,7% of the GDP) in the next decade. This measure should bring growth to 2018% in 4,0, further lowering the unemployment rate (to XNUMX%).
Not surprisingly, consumption and corporate fixed investment remain the main drivers of growth, as they directly benefit from lower personal and corporate tax rates. In the longer term, the provisions on personal income will probably no longer apply (as in the case of the tax cuts implemented by the Bush administration in the early 2000s) to comply with the so-called "Byrd rule" according to which any modification does not it must affect the deficit in the year following the end of the period of application of a budget resolution. But the Republicans will almost certainly try to make the corporate tax changes permanent without affecting the deficit (which means that the corporate tax rate will probably be raised to 25% instead of 20%).
GLOBAL GROWTH IMPROVES
“More than ten years after the first signs of what would have been the global financial crisis, we expect global growth to finally return to its historical trend of 3,7% in 2018. But what is really important to determine is whether it is just a cyclical increase.
The recovery from the global financial crisis has been unusually long and subdued, although consistent with what Reinhart and Rogoff had documented based on previous credit-induced financial crises.
The improvements we saw last year were quite widespread. Brazil and Russia have finally come out of recession, India has confirmed its dynamism and the long-awaited slowdown in Chinese growth has not materialised. At the same time, the recovery in oil prices benefited the United States and Canada, fiscal stimulus measures supported Japan and domestic demand strengthened the Eurozone.
However, in our view this is a rather modest recovery in the business cycle compared to an outright rebound, particularly given that the combination of declining demographics and a slowdown in productivity growth means that the sustainable growth rate or potential of advanced economies remains low.
Inflation also remains imperceptible. Since mid-2014, oil prices have influenced inflation trends. After a slight increase in 2016 and 2017, we expect inflation to stabilize in 2018 if oil prices do not rise further.
Read the full report: Gmo Economic Outlook
