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IMF's global growth forecast down to 3.4 % post Brexit
21
Jul '16
The International Monetary Fund (IMF) cut its forecasts for global economic growth 2016 and 2017 following the stunning U.K. vote to leave the European Union (EU) that created a wave of uncertainty amid already-fragile business and consumer confidence.

The global economy is projected to expand 3.1 % this year and 3.4 % in 2017, representing a 0.1% point reduction for both years relative to IMF's April World Economic Outlook, the IMF said in its update of the April WEO released on Tuesday.

With the event still unfolding, the report says that it is still very difficult to quantify the potential repercussions.

“Brexit has thrown a spanner in the works,” said Maurice Obstfeld, IMF Chief Economist and Economic Counsellor. Global growth, already sluggish, will suffer as a result, putting the onus on policy makers to strengthen banking systems and deliver on plans to carry out much-needed structural reforms.

“The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies,” it said.

According to the update, the economies of the United Kingdom (U.K.) and Europe will be hit the hardest by fallout from the June 23 referendum that led to a change of government in Britain.

The U.K. economy will expand 1.7 % in 2016, which is 0.2 % point less than forecast in April. In 2017, the nation's growth will slow to 1.3 %, down 0.9 point from the April estimate and the biggest reduction among advanced economies.

For the EU area, IMF raised its forecast by 0.1 point this year, to 1.6 %, and lowered it by 0.2 point in 2017, to 1.4 %.

Policymakers in U.K. and EU will play a key role in tempering uncertainty that could further damage growth in Europe and elsewhere, the IMF said. It called on them to engineer a “smooth and predictable transition to a new set of post-Brexit trading and financial relationships that as much as possible preserves gains from trade between the U.K. and the EU.”

Had it not been for Brexit, IMF was prepared to leave its outlook for this year broadly unchanged as better-than-expected euro area performance offset disappointing U.S. first-quarter growth. The IMF also had been prepared to raise its outlook for 2017 slightly, by 0.1 percentage point, on the back of improved performance in a few big emerging markets, in particular Brazil and Russia.

The IMF, however, maintained that its forecasts were contingent on the “benign” assumptions that uncertainty following the U.K. referendum would gradually wane, the EU and U.K. would manage to avoid a large increase in economic barriers, and that financial market fallout would be limited.


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