Barriers would squander US gains

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US President-elect Donald Trump's tax cuts and spending plans could deliver a shot in the arm to the US economy, lifting growth around the world, although uncertainty about his trade policies adds to the risks, according to the World Bank.

The Trump administration could squander the economic gains of fiscal stimulus if it imposes new trade barriers that provoke retaliation by other countries, the Washington-based development lender said yesterday.

It's too early to assess what the net effect will be of Trump's economic policies, the World Bank said.

Accordingly, it left its forecast for US growth this year and next unchanged, at 2.2 per cent and 2.1 per cent, respectively.

The outlook doesn't incorporate the expected effect of Trump's policy proposals, according to the report.

The bank projects the world economy will grow 2.7 per cent in 2017, down 0.1 percentage point from its forecast in June.

Stalling trade, weak investment and heightened policy uncertainty have dampened global economic activity, pushing growth down to an estimated 2.3 per cent last year; the slowest rate since the financial crisis.

The World Bank estimates global growth will pick up to 2.9 per cent next year, also down 0.1 per cent from its June call.

The lender sees the eurozone expanding at a 1.5 per cent rate with uncertainty lingering as the UK starts negotiations to withdraw from the EU.

Japan is seen growing 0.9 per cent this year, while China's output is set to expand 6.5 per cent.

US growth could accelerate to as much as 2.5 per cent this year and 2.9 per cent in 2018 if the Trump administration follows through on a pledge to cut the corporate income-tax rate from 35 per cent to 15 per cent, and slash individual rates, the World Bank estimates.

When you have this combination of tax cuts, you have a positive outcome on investment and personal consumption,

Ayhan Kose, director of the bank's Development Prospects Group

A US pickup on that scale would boost global growth by 0.1 percentage point in 2017 and at least 0.3 point next year, depending on the timing of the tax cuts and the response of the Federal Reserve, according to the development lender.

The World Bank said Trump's plan to boost infrastructure spending could also lift growth, but it cautioned that the benefits could be offset if overall federal spending falls.

The US is the biggest trading partner for about a quarter of the world's nations. As a result, efforts by the US to renegotiate trade deals and impose new barriers could set back the global economy, the World Bank said.

Trump has said he'll rethink trade relations with China, renegotiate or withdraw from the North American Free Trade Agreement and keep out of the Trans-Pacific Partnership agreement.