IMF lowers forecasts citing Brexit risks
July 20, 2016, 1:16 am

The IMF’s Christine Lagarde has warned of risks to the global economy and has called for a speedy Brexit to minimize uncertainty in markets [Xinhua]

It revised growth figures for both 2016 and 2017 as a stark reminder of how fragile world economies have become since the 2008 financial crisis.

Among some of its red flags has been the outlook on Venezuela; the IMF said that the Latin American country struggling with drastically low oil prices will continue to suffer as its inflation rate likely reaches 1.600 per cent in 2017.

For the rest of the world, the IMF revised global growth by 0.1 per cent for both 2016 and 2017, to 3.1 per cent and 3.4 per cent, respectively.

But the IMF’s ‘told you so’ report focused first on Britain and the UK.

The IMF reiterated on Tuesday that it had never been in favor of the referendum let alone Britain’s exit from the European Union.

At it’s last global economic forecast in April, the IMF had voiced its misgivings but at the same time expressed confidence that the UK economy would grow by 2.2 per cent in 2017 – one of the best performances in Europe and outpacing the US.

Just four short months later, however, the IMF has revised downward its forecast to just 1.3 per cent in 2017 largely due to the risks carried by Brexit.

But now that Brexit is reality and no longer a matter of speculation the IMF stands with Europe in calling for a speedy and stable transition from the European Union.

“Of primary importance is a smooth and predictable transition to a new set of post-exit trading and financial relationships that as much as possible preserves gains from trade between the UK and the EU,” the report said.

Brazil, Russia

In other parts of the report, the IMF indicated that it was ready to revise upwards its global economic outlook on the eve of the Brexit referendum but that the result had effectively thrown a monkey wrench into global performance expectations.

Of particular interest, pre-Brexit, were the findings on Brazil which has been beleaguered by negative economic data for the past two years.

The IMF said that Brazil and fellow BRICS member Russia had showed “modest upward revision to 2017 global growth relative to April’s forecast”.

Now, the IMF says that confidence in the Brazilian economy is slowly reawakening. It said that Brazil’s contraction (3.8 per cent) in 2016 would moderately subside to (3.3 per cent) in 2017. It forecast positive growth for Brazil in 2017 but voiced concern over ongoing corruption and political scandals which have rocked Brazil.

The IMF report also appeared to reiterate what the Russian finance ministry said last week about turning the corner away from the potential of recession.

“Higher oil prices are providing some relief to the Russian economy, where the decline in GDP this year is now projected to be milder, but prospects of a strong recovery are subdued given long-standing structural bottlenecks and the impact of sanctions on productivity and investment,” the IMF report said.

In an earlier report specifically on Russia, the IMF had said:

“The economic contraction is nonetheless shallower than previous recessions as a stronger external position and the authorities economic package — a flexible exchange rate regime, banking sector capital and liquidity injections, limited fiscal stimulus, and regulatory forbearance — cushioned the shocks, helped restore confidence and stabilized the financial system.”

Meanwhile, the IMF said that the effects of Brexit on China’s economic activity would likely be minimal – if at all.

It also said that the near-term forecasts for China’s economy improved due to recent policy support from the government.

“Benchmark lending rates were cut five times in 2015, fiscal policy turned expansionary in the second half of the year, infrastructure spending picked up, and credit growth accelerated,” the report said.

The BRICS Post with inputs from Agencies