Maury Obstfeld

The International Monetary Fund (IMF) says Brexit constitutes “an important downside risk” for the world economy.

It said that the exit of Britain from the European Union (EU) caught global financial markets off guard, shaking up equity and currency markets.

This is contained in the IMF quarterly update on Monday in Washington to its World Economic Outlook.

The IMF said it trimmed its outlook for global economic growth through 2017 due to economic uncertainty in the wake of last month’s vote for Britain to leave the EU.

The lender said that it lowered its global 2016 growth forecast to 3.1 per cent, down 0.1 percentage points from its estimate in April.

“The revised projection for 2017 is 3.4 per cent, likewise down 0.1 percentage points.’’

The report said further that “as a result, the global outlook for 2016-17 has worsened, despite the better-than-expected performance in early 2016’’.

It said that the decline portends to be most severe in Britain, where the IMF cut its 2016 growth forecast by 0.2 percentage points to 1.7 per cent.

“The negative impact next year is forecast at 0.9 percentage points, with growth projected at 1.3 per cent.

“Brexit-related revisions are concentrated in advanced European economies, with a relatively muted impact elsewhere including in the U.S. and China,” it said.

IMF said that the outlook for emerging market and developing economies remained unchanged at 4.1-per-cent growth in 2016 and expansion of 4.6 per cent next year.

Maury Obstfeld, IMF Chief Economist, said that the future effects of Brexit are exceptionally uncertain.

He noted that it has been only four weeks, but it is very hard to say what the ultimate outcome could be.

He warned that the vote for Britain to leave the EU added “downward pressure” to the global economy just as there were “promising signs” in the first half of the year.

Obstfeld said that the growth had been modestly better than expected in the Eurozone and Japan, and a partial recovery in commodity prices was helping some countries that export raw materials.

“The IMF had been eyeing a modest hike in 2016-17 forecasts before the referendum in Britain.

“But Brexit has thrown a spanner in the works,” he said.

He, however, noted that financial markets have “proven resilient” in the weeks since the June 23 vote, a reaction which he said “has certainly been reassuring”.

“But vulnerabilities persist, not least in some of Europe’s banks.’’

Obstfeld said noted that regionally, sub-Saharan Africa was facing the sharpest slowdown, with growth expected to fall by roughly half in 2016 to just 1.6 per cent, due largely to contractions in Nigeria and South Africa.

He cautioned of the “dramatic implication” that the slowdown in sub-Saharan Africa would leave growth this year below population growth, causing a decline in per capita income. (dpa/NAN)