By Jim Puzzanghera | TNS
WASHINGTON—Britain’s vote to leave the European Union has led the International Monetary Fund (IMF) to trim its forecast for global economic growth through 2017, but, so far, the impact has not been as severe as initially feared.
World economic output will increase 3.1 percent this year, the same as it did in 2015, and improve to 3.4-percent growth next year, the IMF said on Tuesday.
The forecasts for 2016 and 2017 each were a tenth of a percentage point lower than in the organization’s April World Economic Outlook.
If not for the British vote, dubbed “Brexit,” the IMF said it would have left its forecast for this year unchanged because “better-than-expected economic activity” in the euro zone had offset “disappointing US first-quarter growth.” The forecast for next year would have been increased by a tenth of a percentage point from the April estimate.
But the result of last month’s referendum in Britain “creates a wave of uncertainty amid already-fragile business and consumer confidence,” the IMF said.
“The Brexit vote has thrown a spanner in the works,” IMF chief economist Maury Obstfeld said, using a British term for wrench.
Britain’s economy now is forecast to expand 1.7 percent this year—down 0.2 percentage points from the IMF’s April estimate—and just 1.3 percent in 2017. The forecast for next year is nearly 1 percentage point lower than the April estimate.
“The vote in the United Kingdom in favor of leaving the European Union adds significant uncertainty to an already-fragile global recovery,” the IMF said.
“The vote has caused significant political change in the United Kingdom, generated uncertainty about the nature of its future economic relations with the European Union and could heighten political risks in the European Union itself,” the report said.
The uncertainty is expected to hurt investment and confidence. But the growth revisions caused by the British vote were concentrated in advanced European economies, and the Brexit should have “a relatively muted impact elsewhere,” the IMF said.
The IMF increased its forecast for growth in the euro zone this year by a tenth of a percentage point to 1.6 percent from the April estimate. But the group cut its forecast for 2017 to 1.4 percent, down 0.2 percentage points from April.
The US economy is expected to expand 2.2 percent this year, down 0.2 percentage points from the April estimate. The 2017 forecast of 2.5-percent growth is unchanged.
The IMF warned that the Brexit effect on the global economy could be even worse.
A severe-impact scenario—envisioning “intensified financial stress, particularly in Europe, a sharper tightening of financial conditions and a bigger blow to confidence”—would cause global growth to fall to 2.9 percent this year and 2.8 percent next year.
But the IMF said that scenario, and a less extreme downside forecast, have become less likely after financial markets stabilized following initial sharp declines after the Brexit vote.
Image credits: AP/Adela Suliman