IMF says Brexit will drag down world economic growth

IMF says Brexit will drag down world economic growth

Maury Obstfeld, IMF economic counsellor and director of the research department, said in a speech titled "A spanner in the works: WEO Update Opening Statement" that the Brexit vote had thrown a spanner in economic growth.

"As of 22 June, we were therefore prepared to upgrade our 2016-17 global growth projections slightly". And with the event still unfolding, the report says that it is still very hard to quantify potential repercussions.

It said: "Brexit-related revisions are concentrated in advanced European economies, with a relatively muted impact elsewhere, including in the United States and China".

Global growth has not been weaker than 3% since 2009, when the world economy stalled in the wake of the financial crisis.

The IMF revised its outlook, reducing global output growth in 2016 from 3.2 percent to 3.1, and the 2017 outlook from 3.5 percent to 3.4 percent. It cut the 2017 United Kingdom forecast more sharply, by 0.9 percentage points, to 1.3 percent.

Mr. Rodlauer said the International Monetary Fund also raised some questions on the downside risk arising from Cambodia's rapid credit growth and the increased concentration in the real estate sector, which threatened to undermine the country's economic and financial stability.

The IMF said China's outlook was largely unchanged, with a slight improvement to 6.6 percent seen in 2016, but still slowing to 6.2 percent in 2017.

It added: "As a result the global outlook for 2016-2017 has worsened, despite the better than expected performance in early 2016".

The IMF has praised the reform measures while insisting that more needs to be done.

Obstfeld said: "The real effects of Brexit will play out gradually over time, adding elements of economic and political uncertainty that could be resolved only after many months". "This overlay of extra uncertainty, in turn, may open the door to an amplified response of financial markets to negative shocks".

The US is seen growing by 2.2 percent this year, down from the 2.4 percent forecast in April.

It now expects 2016 growth of 0.3 percent compared with 0.5 percent previously, while 2017 growth will be barely in positive territory at 0.1 percent.

"Our projections for other areas are little changed by Brexit". That said, gains in the emerging group are matched by losses in low-income economies. It cited "unresolved legacy issues in the European banking system, in particular in Italian and Portuguese banks". Non-performing loans and the poor profitability of Greek, Italian and Portuguese banks as well as enduring market turbulence were among factors that "could have severe macroeconomic repercussions", according to the Fund.

"Geopolitical tensions, domestic armed strife, and terrorism are also taking a heavy toll on the outlook in several economies, especially in the Middle East, with further cross-border ramifications", it said.

Related news: