The International Monetary Fund cut its forecasts for global economic growth this year and next as the unexpected U.K. vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence.
On Tuesday, the IMF released its World Economic Outlook, with the global growth forecast at 3.1% for this year. and 3.4% for 2017.
The trimmed growth forecast is 0.1 percentage points down on the IMF’s April forecast, 0.3 percentage points lower than its January estimate, 0.5 percentage points below its estimate from October 2015 and 0.6 percentage points down on its forecast from July 2015.
The forecast for 2017 is lower than the 3.5% forecast back in April and 3.6% in January.
“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,” according to the IMF’s World Economic Outlook Update released today.
“Brexit has thrown a spanner in the works,” said Maurice Obstfeld, IMF Chief Economist and Economic Counsellor. And with the event still unfolding, the report says that 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.
Brexit’s fallout is likely to be felt in Japan, where a stronger yen will limit growth. The IMF cut its 2016 growth forecast by 0.2 percentage point, to 0.3 percent. Next year, Japan’s economy, the world’s third-largest, is expected to expand 0.1 percent, 0.2 percentage point more than predicted in April, due to postponement of the consumption tax increase.
In the U.S., weaker-than-expected growth in the first quarter prompted the IMF to reduce its 2016 forecast to a gain of 2.2 percent, 0.2 percentage points less than the April outlook. The IMF left its 2017 forecast for U.S. growth unchanged at 2.5 percent.
China’s growth forecast for 2016 is up 0.1 percentage point, to 6.6 percent, and is unchanged for 2017 at 6.2 percent. Brexit fallout is likely to be muted for China, the world’s second-largest economy, because of its limited trade and financial links with the U.K.
“However, should growth in the European Union be affected significantly, the adverse effect on China could be material,” the IMF said. – BusinessNewsAsia.com with reports from the IMF