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article imageIMF cuts global growth forecast for next two years after Brexit

By Ken Hanly     Jul 20, 2016 in Business
Washington - The International Monetary Fund (IMF) cut its global growth forecasts on July 19 citing uncertainty over the economic effects of the recent Brexit vote which will see the UK leave the European Union (EU).
Even before the Brexit vote, the IMF had cut its global growth outlook. The new forecasts represent the fifth time in the last 15 months that the IMF has cut forecasts of global economic growth. In its World Economic Outlook forecast the IMF now predicts global GDP to grow at 3.1 percent in 2016 and 3.4 percent in 2017 a decline of 0.1 percent for both years from the forecast in April.
While the IMF said that there had been recent improvements in Japan and the EU, and some recovery in commodity prices, that the Brexit vote increased uncertainty which took its toll on the investment outlook and consumer confidence. The chief IMF economist, Maury Obstfield, said that a day before the Brexit vote the IMF was ready to upgrade the 2016-17 growth projections slightly higher: "But Brexit has thrown a spanner in the works."
On the day before Britain's June 23 EU referendum, the IMF was "prepared to upgrade our 2016-17 global growth projections slightly," IMF chief economist Maury Obstfeld said in a statement. "But Brexit has thrown a spanner in the works." The IMF projected that the Brexit will slow global growth both this year and next.
The IMF projects the UK GDP to grow by 1.7 percent this year. This is down from the 1.9 percent it forecast in April. The forecast for 2017 is just 1.3 percent, down from 2.2 percent forecast in April. Of the 16 economies surveyed by the IMF, the reduction of 0.9 percent in the UK's 2017 forecast was only exceeded by that of Nigeria..
The Brexit was thought to have a negligible impact on the United States' economy. The IMF statement noted that the projections were made on the basis of a relatively benign settlement of the Brexit issue between the US and Europe, that presumes no major increase in economic barriers or further financial disruptions.
If there were severe disruptions as the negotiations hit snags, the UK-EU relationship would revert to World Trade Organization rules, and London could lose a significant portion of its financial services to the continental EU. If this were to happen, the UK would fall into recession and global growth would slow to 2.8 percent both in 2016 and 2017.
Under a mid-range scenario, with lower consumer confidence, and the UK losing some of its financial services sector to Europe, global growth would be 2.9 percent in 2016 and 3.1 percent in 2017. The recovery of the markets after the Brexit lead the IMF to choose the most benign model. A spokesperson for the UK Treasury said that while the Brexit vote represented a new phase for the UK economy, the focus would remain global: "Our absolute priority is to send a clear signal to businesses both here and across the world, that we are open for business and determined to keep Britain an attractive destination for investors from overseas."
The IMF outlook for China was relatively unchanged with a marginal improvement to 6.6 percent for 2016 but slowing to 6.2 percent in 2017. The recessions in Brazil and Russia are not as severe as previously thought, with both countries expected to return to positive growth in 2017 as commodity prices improve. The Fund urged countries to support demand and introduce structural reforms to help encourage growth.
More about Imf, Global economic growth, Brexit