Brexit threw a 'spanner in the works' – IMF

Padraig Dalton, Central Statistics Office Padraig Dalton, Central Statistics Office

The British vote to leave the European Union “has thrown a spanner in the works” of IMF global growth projections, forcing the Fund to cut its European economic forecasts.

The International Monetary Fund (IMF) yesterday cut its global growth forecasts for the next two years. The Washington-based body cited uncertainty over Britain’s looming exit from the European Union as a key factor, although its had to cut its forecast four times already over the past 15 months.

The latest move included a nearly full percentage-point cut in the UK’s 2017 growth forecast.

The IMF now expects global GDP to grow at 3.1pc in 2016 and at 3.4pc in 2017m, down 0.1 percentage point for each year from estimates issued in April.

The latest figures don’t include a breakdown for Ireland. Here, the head of the Central Statistics Office (CSO) admitted yesterday that standard growth measures are no longer useful in assessing the size of the economy here.

“Standard GDP and GNP measures no longer provide a sufficient understanding of the Irish economy,” Pádraig Dalton, director general of the CSO, told delegates at the McGill Summer School.

He was responding to the widespread disbelief at figures published last week that showed the economy here had grown by 26pc last year. An expert group is being convened to look at alternatives and will be tasked with preparing a report to be published later this year, he said.

However, Mr Dalton stood over the figures themselves.

The revisions published were based on hard data and attributable to the globalisation activities of a very small number of companies, he said. Growth here is expected to take a hit next year in real terms, as a result of the anticipated slowdown in the UK.

The IMF said the UK’s Brexit vote had created a “sizeable increase in uncertainty” that would take its toll on investment and market and consumer confidence.

On the day before Britain’s June 23 EU referendum, the IMF was “prepared to upgrade our 2016-17 global growth projections slightly”, IMF chief economist Maury Obstfeld said in a statement. “But Brexit has thrown a spanner in the works.”

The IMF said that the impact will hit hardest in Britain itself, where the institution cut its 2016 growth forecast to 1.7pc, down 0.2 percentage points from its April forecast. It cut the 2017 UK forecast more sharply, by 0.9 percentage points, to 1.3pc.

The IMF lifted its Eurozone forecast slightly for 2016, but cut its 2017 outlook by 0.2 percentage point to 1.4pc for 2017.

It said last week that Brexit would have a “negligible” impact on the United States.

The IMF noted that its latest forecasts were made under relatively benign assumptions of a settlement between the EU and Britain that leads to limited political fallout, avoids a major increase in economic barriers and prompts no major further financial market disruptions.

Under a more “severe” divorce, the IMF sees a UK-EU trading relationship reverting to World Trade Organization rules, and London losing a large portion of its financial services sector to continental Europe.

Under that scenario, Britain would fall into recession and global growth would slow to 2.8pc in both 2016 and 2017, the IMF said.

Yesterday, the European Commission’s economic arm gave its first assessment of the post-Brexit economic outlook.

For the euro area, including Ireland, the Commission expects growth could slow from an expected 1.7pc in 2016 to between 1.5pc and 1.6pc, and from 1.7pc in 2017 to between 1.3pc and 1.5pc.

Britain itself faces a sharper slowdown with growth reduced by 1pc to 2.75pc by 2017, it said.

“The referendum has created an extraordinarily uncertain situation. Due to the lack of information about the new equilibrium after the UK’s exit, many elements have not yet entered the assessment but nevertheless constitute substantial risks to the outlook,” the commission said.

Irish Independent

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