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IMF downgrades global growth on Brexit and US slowdown

Brexit

The IMF has downgraded global growth to 3.1 per cent for 2016 due to the UK’s vote to leave the European Union and weaker-than-expected growth in the US.

The forecast has been revised down 0.1 percentage point from its April forecast.

Its outlook for 2017 has been revised down by the same amount, however, growth is expected to be slightly on this year at 3.4 per cent.

While the IMF has slashed the UK’s growth forecast for 2017, it has gone from anticipating a recession in the case of a Brexit vote to arguing that the UK will be the fastest growing G7 country this year.

Regardless, it expects UK growth to slow to 1.8 per cent this year compared to 2.2 per cent in 2015.

By 2017, it expects growth to slow to 1.1 per cent and for the UK to fall to fifth in the G7 for growth, behind the US, Canada, Germany and France.

The UK and Germany were the only G7 countries the IMF expects will see lower growth in 2017 than in 2016, with the UK experiencing the most significant slowdown.

The IMF says in its report: “These developments have put further downward pressure on global interest rates, as monetary policy is now expected to remain accommodative for longer.”

It has warned the US Federal Reserve that increases to the policy rate should be “gradual and tied to clear signs that wages and prices are firming durably”.

It says the market reaction to the Brexit shock was “reassuringly ordered”, but said the ultimate impact remained unclear due to uncertainty about trade and institutional relationships between the UK and the EU.

The report highlighted Asia, particularly India, as a place of robust growth.

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