By James Barrie T he International Monetary Fund cut its global growth forecasts for the next two years citing uncertainty over Britain’s looming exit from the European Union. The move included a nearly full percentage-point reduc- tion in the UK’s 2017 growth forecast, the IMF said that it now expects global GDP to grow at 3.1 percent in 2016 and at 3.4 percent in 2017, this is down 0.1 percentage point for each year from estimates issued in April. The IMF said that despite recent improvements in Japan and Europe and a partial recovery in commodity prices, the UK’s Brexit vote had created a “sizeable increase in uncertainty” that would take its toll on investment and market and consumer confidence. The IMF said that the impact of Brexit will hit hardest on Britain itself, where 2016 growth forecasts were cut to 1.7 percent, down 0.2 percentage points from its April forecast. The IMF cut the 2017 UK forecast more sharply, by 0.9 percentage points, to 1.3 percent. The IMF lifted its euro zone forecast slightly for 2016, but cut its 2017 outlook by 0.2 percentage points to 1.4 percent for 2017. Given the financial market recovery following the initial Brexit vote shock was instrumental in the IMF to going with the scenarios having the least impact. The IMF noted that its latest forecasts were made under assumptions of an easy settlement between the EU and Britain with little political fallout and without a major increase in economic barriers and with no major financial market disruptions. The IMF had a more middle of the road scenario labeled “downside” would see tighter financial conditions and lower consumer confidence than the baseline, with the UK losing some of its financial services sector to Europe. It shows global growth at 2.9 percent in 2016 and 3.1 percent in 2017. The IMP has also modeled other scenarios, including a “severe” one in which the negotiations to separate from the EU go badly, where financial stress intensifies and the UK-EU trading relationship reverts to World Trade Organi- zation rules and London loses a large portion of its finan- cial services sector to continental Europe. The “severe” scenario sees the UK falling into recession causing global growth to slow to 2.8 percent in both 2016 and 2017. Responding to the IMF’s report, a UK Treasury spokeswom- an said that the Brexit vote marks a “new phase” for Britain’s economy, but the country would remain globally focused. The IMF said that Brexit would have a “negligible” impact on the United States.
“Our absolute priority is to send a clear signal to busi- nesses 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 spokeswom- an said in a statement. 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. Recessions in Brazil and Russia will be less severe than previously forecast this year due partly to some recovery in oil and commodities prices, the IMF said, adding that both countries will return to positive growth in 2017. The Fund urged policymakers not to accept the tepid growth rates as a “new normal,” and said that they should support demand in the near-term and structural reforms to aid medium-term growth. The IMF said it had been prepared to raise Japan’s 2017 growth outlook by 0.4 percentage points after the delay of a consumption tax hike next spring, but this has been cut in half by the continued rise in the yen’s value. 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.
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AUGUST 2016 • SPOTLIGHT ON BUSINESS
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