The economies of the United Kingdom (U.K.) and Europe will be hit the hardest by fallout from the June 23 referendum, which prompted a change of government in Britain. 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
July 19, 2016 – The International Monetary Fund (IMF) has said that the economy of United Kingdom and the European Union (EU) will be worst hit by outcome of the referendum in which Britain voted to leave the European Union.
The IMF made the revelation in its Global forecast for 2017. The IMF noted that 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 and that with events still unfolding it is still very difficult to quantify potential repercussions.
“The economies of the United Kingdom (U.K.) and Europe will be hit the hardest by fallout from the June 23 referendum, which prompted a change of government in Britain. 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.
“In particular, policymakers in the U.K. and the European Union (EU) will play a key role in tempering uncertainty that could further damage growth in Europe and elsewhere”, the IMF said and 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.”
The IMF noted that global economy is projected to expand by 3.1 percent this year and 3.4 percent in 2017, a downgrade of about 0.1 percentage point reduction for both years relative to the IMF’s April World Economic Outlook.
The U.K. economy will expand by 1.7 percent this year, about 0.2 percentage point less than forecast in April.
It added that the nation’s growth will slow to 1.3 percent next year, down 0.9 point from the April estimate and the biggest reduction among advanced economies.
For the euro area, the Fund raised its forecast by 0.1 point this year, to 1.6 percent, and lowered it by 0.2 point in 2017, to 1.4 percent.
It noted that had it not been for Brexit, the 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 said.
The IMF said 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.
Even so, the IMF warned that “more negative outcomes are a distinct possibility”, and that the real effects of Brexit will play out gradually over time, adding elements of economic and political uncertainty .
