IMF cuts EU’s growth outlook to 1.6% this year, 1.4% in 2017 on the back of Brexit vote
The International Monetary Fund has cut its growth outlook for the eurozone on the back of the Brexit vote, warning that a new climate of uncertainty across the single currency bloc will dent confidence, fan financial market volatility and spill over into other economies.
The Fund used a regular healthcheck on the eurozone to warn it would suffer an economic slowdown and more political uncertainty as a result of last month’s referendum result. It is the latest body to warn that fresh cracks could emerge in the region as it grapples with the fallout of the UK’s decision to depart the EU.
GDP in the eurozone is now expected to grow 1.6% this year and just 1.4% in 2017, a slowdown from a 1.7% expansion last year, “mainly due to the negative impact of the UK referendum”, the IMF said. That compares with IMF forecasts before the June vote of 1.7% growth for the eurozone this year and next. The IMF had repeatedly warned before the referendum of dire economic consequences from Brexit, much to the anger of leave campaigners.
In its latest comments, the Washington-based fund highlighted the UK’s importance as a trading partner for the eurozone as the destination for 13% of euro area exports. “The markdowns for the euro area reflect likely weaker investor confidence on account of heightened uncertainty, greater financial market volatility, and lower import demand from the UK.
“Given the euro area’s substantial weight in world trade, this slowdown would have spillovers to many other economies, including emerging markets but the impact is expected to be limited.
“Looking ahead, the risks to the outlook remain firmly on the downside and are mainly political. Uncertainty will persist as long as the UK’s new status vis-à-vis the EU is not clear. The recommendation in the staff report that collective actions should be taken to improve the governance of the economic union and make it more cohesive remains valid, and has now taken on greater urgency.”
