• Global economic activity continues to firm up. Global output is estimated to have grown by
3.7 percent in 2017, which is 0.1 percentage point faster than projected in the fall and ½
percentage point higher than in 2016. The pickup in growth has been broad based, with notable
upside surprises in Europe and Asia. Global growth forecasts for 2018 and 2019 have been
revised upward by 0.2 percentage point to 3.9 percent. The revision reflects increased global
growth momentum and the expected impact of the recently approved U.S. tax policy changes.
• The U.S. tax policy changes are expected to stimulate activity, with the short-term impact in the
United States mostly driven by the investment response to the corporate income tax cuts. The
effect on U.S. growth is estimated to be positive through 2020, cumulating to 1.2 percent through
that year, with a range of uncertainty around this central scenario. Due to the temporary nature
of some of its provisions, the tax policy package is projected to lower growth for a few years
from 2022 onwards. The effects of the package on output in the United States and its trading
partners contribute about half of the cumulative revision to global growth over 2018–19.
• Risks to the global growth forecast appear broadly balanced in the near term, but remain skewed
to the downside over the medium term. On the upside, the cyclical rebound could prove stronger
in the near term as the pickup in activity and easier financial conditions reinforce each other. 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. A possible trigger is a
faster-than-expected increase in advanced economy core inflation and interest rates as demand
accelerates. 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. Inward-looking policies, geopolitical tensions,
and political uncertainty in some countries also pose downside risks.
• The current cyclical upswing provides an ideal opportunity for reforms. Shared priorities across
all economies include implementing structural reforms to boost potential output and making
growth more inclusive. In an environment of financial market optimism, ensuring financial
resilience is imperative. Weak inflation suggests that slack remains in many advanced economies
and monetary policy should continue to remain accommodative. However, the improved growth
momentum means that fiscal policy should increasingly be designed with an eye on medium-term
goals—ensuring fiscal sustainability and bolstering potential output. Multilateral cooperation
remains vital for securing the global recovery.