The International Monetary Fund has revised up its forecast for world economic growth in 2018 and 2019 and said that sweeping US tax cuts were expected to boost investment in the world's largest economy and help its main trading partners.
In an update of its World Economic Outlook, the IMF however warned that US growth would likely start weakening after 2022 as temporary spending incentives brought about by the tax cuts start to expire.
The tax cuts would likely widen the US current account deficit, strengthen the US dollar and affect international investment flows, IMF chief economist Maurice Obstfeld said.
US President Donald Trump signed Republicans' massive $1.5 trillion tax overhaul into law in December, cementing the biggest legislative victory of his first year.
The tax package, the largest such overhaul since the 1980s, slashed the corporate rate from 35% to 21% and temporarily reduced the tax burden for most individuals as well.
The US economy has been showing steady but underwhelming annual growth since the last recession in 2007-2009.
The Fund revised up its forecast for global growth to 3.9% for both 2018 and 2019, a 0.2 percentage point change from its last update in October.
It also said that economic activity in Europe and Asia was surprisingly stronger than expected last year, and global growth in 2017 was now estimated to have reached 3.7%, 0.1 percentage point higher than the IMF projected in October.
"The US tax policy changes are expected to stimulate activity, with the short-term impact in the US mostly driven by the investment response to the corporate income tax cuts," the IMF said in the update.
Its update was released on the sidelines of the World Economic Forum in Davos in Switzerland.
"The effect on the US growth is estimated to be positive through 2020, culminating to 1.2% through that year," it said, cautioning that after 2022 the tax cuts were expected to lower growth for a few years.
The IMF said the US economy was now expected to expand by 2.7% in 2018, higher than the 2.3% forecast in October. US growth was projected to slow to 2.5% in 2019, it said.
The IMF also revised up its growth forecasts for the euro area, especially for Germany, Italy and the Netherlands "reflecting the stronger momentum in domestic demand and higher external demand."
However, it cut its forecast for Spain's growth for 2018 by 0.1 percentage point, saying political uncertainty was expected to impact business confidence and demand.
The Fund revised up its growth forecast for Japan to 1.2% this year and 0.9% in 2019. It maintained its projection for Britain's growth at 1.5% this year.
The IMF also maintained its forecast for growth in emerging markets and developing countries for this year and next. China's economy was expected to expand 6.6% this year and slow to 6.4% in 2019.
The IMF said growth in the Middle East, North Africa, Afghanistan and Pakistan was also expected to pick up in 2018 and 2019 but remain subdued at 3.6% this year.
The global financial institution said growth in the Middle East and Sub-Saharan African would be impacted by weakness in their larger economies, Saudi Arabia and South Africa.
The IMF revised down its growth estimate for South Africa to 0.9% for this year and next amid concerns over political uncertainty. It maintained its projections for Nigerian grow of 2.1% this year and 1.9% in 2019.
In Latin America, growth will be weighed down by an economic collapse in Venezuela despite a pick-up in economic activity in Brazil and Mexico, the Fund said.