U.S. economy’s rosy outlook could change if Trump’s tax reform promises fail: IMF

The U.S. economy is poised to gain steam this year, but that rosy forecast could change if President Trump’s promises of tax reform fail to materialize.

Ahead of a meeting of world finance chiefs in Washington this week, the International Monetary Fund released on Tuesday its flagship report on the world economy, forecasting the U.S. economy would grow at 2.3% this year and 2.5% in 2018 — a faster pace than last year’s 1.6%.

The uptick is driven by expectations that the U.S. will cut taxes and higher confidence among consumers and businesses. The IMF also forecast that all five of Europe’s largest economies will grow even faster. Projected global growth is set to rise to 3.5% from 3.1%.

Since Trump’s election in November, expectations of looser fiscal policy in the U.S. have contributed to a stronger dollar and higher U.S. Treasury interest rates.

Campaign promises by Trump to pursue policies that would lead to faster growth, such as dismantling the Dodd-Frank financial regulations, tax reform and repealing and replacing Obamacare, have helped to bolster investor expectations.

“The anticipated shift in the policy mix so far has buoyed financial markets and strengthened business confidence, which could further fuel the current momentum,” the IMF report said.

The IMF’s prediction, however, could be upended if the administration’s legislative efforts continue to face obstacles. Efforts by Republicans to push through a new health care bill collapsed last month, and GOP lawmakers could hit another wall if they’re unable to tap savings from a new health care bill in order to support a tax plan.

“If that doesn’t materialize as expected, we would have to revise,” said Maurice Obstfeld, the IMF’s chief economist during a press briefing, noting that “fiscal stimulus as of now is a work in progress” with “many components being debated.”

The IMF’s next set of economic projections is due in July.