IMF cuts global growth forecasts on Brexit risks

The International Monetary Fund (IMF) has lowered its forecasts for global economic growth to 3.1 percent in 2016 and 3.4 percent in 2017 – a 0.1 percent decrease for both years from its April outlook – amid uncertainty in global markets following the Brexit vote.

The UK’s vote to leave the European Union (EU) on June 23 has created a “wave of uncertainty” amid already-fragile business and consumer confidence, the IMF said in its latest World Economic Outlook report.

The leave decision is expected to result in negative macroeconomic consequences, with the UK and advanced European economies likely to be the hardest hit.

Britain’s economy is expected to grow 1.7 percent this year – 0.2 percent below than the IMF's previous forecast in April. The country's GDP growth is seen to slow to 1.3 percent next year, which would be 0.9 percent lower than the previous estimate and mark the biggest reduction among advanced economies.

Meanwhile, the growth forecast for Europe was raised by 0.1 percent this year to 1.6 percent, while the estimate for 2017 was revised down 0.2 points to 1.4 percent.

The IMF called on policymakers in the UK and EU to engineer a “smooth and predictable transition to a new set of post-Brexit trading and financial relationships.”

In addition, the fund warned that “more negative outcomes” of Brexit are a distinct possibility worldwide, with Japan and China mostly like to see some level of impact outside Europe.

The fund highlighted other risks to its global growth outlook, including turbulence in financial markets, political divisions within advanced economies, a shift towards protectionist policies, and geopolitical tensions and terrorism.

It also urged advanced nations to reduce reliance on monetary policy to spur their economies.

“Stronger reliance on measures to support domestic demand, especially in creditor countries with policy space would help reduce global imbalances, while contributing to stronger worldgrowth,” the report added.

Write to Jerusha Sequeira at jerusha.s@argaamplus.com