The International Monetary Fund (IMF) has kept its forecast unchanged for global economic growth for this year and next, with downgrades for the US and UK offset by rises for the eurozone, Japan and China.The IMF’s World Economic Outlook raised its eurozone growth forecast for 2017 to 1.9 per cent from 1.7 per cent and, for 2018, to 1.7 per cent from 1.6 per cent, largely as a result of improving economic performances in Germany, France, Italy and Spain.

Positive news for a stabilizing eurozone

The eurozone’s better-than-expected growth in the first quarter of 2017 “together with positive growth revisions for the last quarter of 2016 and high-frequency indicators for the second quarter of 2017, indicate stronger momentum in domestic demand than previously anticipated,” the IMF said.Meanwhile, expected growth this year in both China and Japan was increased by 0.1 per cent, but there were downgrades for both the US and UK. Overall, the global economic growth forecast remained at 3.5 per cent for 2017 and 3.6 per cent for 2018.America’s growth projection was reduced from the IMF’s previous forecast of 2.3 per cent for 2017, to 2.1 per cent, and from 2.5 per cent to 2.1 per cent for 2018.The IMF said the US was in the grips of apparently contradictory policies. On one hand, proposals for fiscal stimulus, such as revenue-reducing tax reforms, could push up demand and output growth. On the other, pursuing proposals outlined in the administration budget to cut spending could drive down demand and output.Maurice Obstfeld, director of research at the IMF, told CNBC’s Capital Connection programme on Monday that it was not clear when any of President Donald Trump’s plans would become a reality.

Delay in changes for the US

“We had initially thought back in January that they would come online pretty quickly. Now, that has not happened, so we’ve changed our growth forecasts,” he said. “There is the potential to increase growth through, for example, tax reform, but when we see it we’ll have a better idea of when the effects might be felt.”Mr Obstfeld described as “challenging” Mr Trump’s stated goal of reaching sustained GDP growth of three per cent. “The US has not grown at that rate for a while – at least not on a sustained basis,” he said.“While we could see a quarter or two of three per cent growth, getting there on a sustained basis would be hard given some of the headwinds we’ve seen in terms of productivity growth and demographics.”On the UK, the IMF cut its growth forecast for 2017 to 1.7 per cent – substantially down from its previous prediction of two per cent. For 2018, the forecast remained at 1.5 per cent.“The growth forecast has also been revised down for the United Kingdom for 2017 on weaker-than-expected activity in the first quarter,” the IMF said. “By contrast, growth projections for 2017 have been revised up for many euro area countries, including France, Germany, Italy, and Spain, where growth for the first quarter of 2017 was generally above expectations.”

Brexit effect still to be determined

Mr Obstfeld told BBC Radio 4’s Today programme that the IMF’s calculations for the UK had been based purely on economic performance and not on any concerns over the country leaving the European Union.But he added, “I think we stick to our forecasts that Brexit will be a negative to the British economy. Our forecasts are right now that it’s a mild negative, because we have a favourably optimistic view of how the negotiations will go. But if the parties are not reasonable and collaborative, things could be worse.”Globally, the IMF saw risks in the short term as “broadly balanced,” but said that, in the medium term, risks were “skewed to the downside.”It added, “Protracted policy uncertainty or other shocks could trigger a correction in rich market valuations, especially for equities, and an increase in volatility from current very low levels. In turn, this could dent spending and confidence more generally, especially in countries with high financial vulnerabilities.”

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The IMF said that, in Europe, positive market sentiment and fewer political risks meant activity could be stronger than projected, but it expressed concern that, in commodity-exporting nations, lower prices could exacerbate economic strains. It noted that commodity exporters’ economic growth has been below pre-crisis averages and it advised those nations to continue adjusting to lower revenues and diversifying their sources of growth.“Commodity exporters, as a rule, need to diversify,” Mr Obstfeld told CNBC. “The China card, which was so successful in the 2000s and the early part of this decade, is increasingly absent as China rebalances away from very commodity-intensive activities. So, clearly, the old models are not going to work and governments in those exporters need to be thinking hard about how to broaden their economies.”For related news and features, visit our Enterprise section.

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