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Growth stocks set for a strong run as IMF upgrades global growth to highest in eight years

This should be a very good year for risk assets and the latest assessment from the International Monetary Fund (IMF) is only bolstering the bullish sentiment that has been washing over the market over the past two months.

The IMF has upgraded its 2018 global economic growth forecast to its highest level since 2010, according to an article in the Australia Financial Review.

The world would loath to thank US president Donald Trump but his aggressive tax cut is one of the reasons behind the IMF’s upbeat view. The supranational agency is crediting around half of the upgraded figures to the reduction in US corporate taxes to 21% and the changes to the tax code to allow for the full expensing of capital investments.

The news is just what our Prime Minister needs to regain traction with the Australian public. Turnbull has been pushing unsuccessfully for a corporate tax cut here with Labor vehemently opposing the move, saying it will disadvantage everyday Australians.

There is now growing evidence that the so-called “trickle-down economics” might actually be good for Australia if it promotes growth and jobs.

So far, Qantas Airways Limited (ASX: QAN) has come out to say that it will be investing and hiring more people here if the tax cut comes to pass, and I suspect we will see other blue-chip companies come out with similar rhetoric.

These blue-chips would have a sizable domestic presence and could include steel maker BlueScope Steel Limited (ASX: BSL) and cement supplier Adelaide Brighton Ltd. (ASX: ABC). Both of them are enjoying operating tailwinds from increased infrastructure and construction spending, while combating offshore rivals.

A lower tax rate here will also level the playing field a little for local businesses such as supermarket giant Woolworths Group Ltd (ASX: WOW), electronics retailer JB Hi-Fi Limited (ASX: JBH) and conglomerate Wesfarmers Ltd (ASX: WES) – all of whom are fighting the likes of Amazon.com and Aldi.

Global businesses have more opportunities to cut their tax burden by shifting profits offshore. While that loophole is closing, a lower tax rate here will certainly help our local players.

Back to the IMF, the agency has lifted its world output estimates for 2018 and 2019 by 0.2% to 3.9% for each year. This compares to global gross domestic product (GDP) growth of 3.2% and 3.7% for 2016 and 2017, respectively.

On the downside, the IMF doesn’t have a particularly good track record in predicting growth although, as I mentioned, I am optimistic that 2018 will be a good year for growth.

I am much more sceptical about 2019, but as they say – make hay while the sun shines!

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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