The International Monetary Fund has said the tax cuts introduced by the Trump administration will give a temporary boost to the US economy, but the tax reform effects will wear off in two years time.

This will cause a drop in investment spending and slowing down the US economy. 

The IMF has also strongly criticised the approach of the Trump administration to trade deficits.

In its latest World Economic Outlook, the IMF says growth in the EU and US will be faster than potential this year and next, but will start to weaken after that, due to an ageing population and weak productivity growth. 

In the US, the Trump tax reform will also weigh on the economy after 2020, as it phases out full expensing for investment.

IMF chief economist Maurice Obstfeld said global debt levels are very high, threatening repayment problems as central banks prepare to raise interest rates back to normal levels, at a time when many economies face lower medium-term growth rates.

The economist said global financial conditions remain generally loose despite the approach of higher central bank interest rates. This is increasing the risk of various asset class bubbles emerging - or bursting. 

The escalating tensions over trade also present a risk to growth. inclusiveness.

Describing the US fiscal position as "unsustainable" it urges the US to stabilise and reduce its debt level, and withdraw the pro-cyclical stimulus that is already in the economy. 

This will require higher future revenues - presumably through tax increases - and slowing the rate of increase in public spending, while re-directing money towards infrastructure, boosting labour force participation and combating poverty.

It urges countries with excess current account surpluses and fiscal space - notably Germany - to increase public investment to boost potential growth and demand.


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Mr Obstfeld said the "get tough" approach by the US in trade talks with China, Mexico Canada and others "will do little to change the multilateral or overall US external current account deficit, which owes primarily to level of aggregate US spending that continues to exceed total income". 

He said the recent tax reform in the US will make things worse, stating "we now expect the US current account deficit for 2019 will be roughly $150 billion higher", as a result of the tax and spending changes introduced earlier this year. 

The IMF economist said action to reduce imbalances between economies should be tackled in multilateral actions, adding that surplus and deficit countries should co-ordinate actions to bring their spending programmes more closely into line with their income levels.

For 2018, the IMF has raised its growth forecasts, with the euro area forecast to grow by 2.4% this year, up from a previous estimate by 0.5%. 

The US economy is forecast to grow by 2.9%, up 0.6% from the previous forecast. One third of that uplift in US growth is attributed to the Trump tax reform. 

However the IMF says the stimulus will be "temporary". 

It forecasts the Irish economy to grow at 4.5% this year and 4% next year. It foresees unemployment at 5.5% this year and 5.2% next year.

The IMF has also predicted Chinese growth of 6.6% this year, an increase of 0.1% on the last forecast, while Japan is set for growth of 1.2%, a 0.5% uplift.

Overall global growth is forecast at 3.9% this year and next year. 

While the medium term looks good, the IMF warns countries to get ready for a slowdown in the early 2020's, advising countries to introduce structural reforms and fiscal policies that raise productivity and enhance inclusiveness.

Describing the US fiscal position as "unsustainable" it urges the US to stabilise and reduce its debt level, and withdraw the pro-cyclical stimulus that is already in the economy. 

This will require higher future revenues - presumably through tax increases - and slowing the rate of increase in public spending, while re-directing money towards infrastructure, boosting labour force participation and combating poverty.

It urges countries with excess current account surpluses and fiscal space - notably Germany - to increase public investment to boost potential growth and demand.