IMF slashes euro zone growth outlook on Brexit
The International Monetary Fund (IMF) on Friday announced its cut on euro zone growth outlook for the next two years over uncertainties sparked by Britain’s exit from the European Union.
Stating that the conditions could worsen if confusion continues to reign in financial markets, the IMF in its annual policy review of the 19-country euro currency bloc said it expects the 2016 growth at 1.6 percent, down from the previous forecast of 1.7 percent.
In its annual policy review of the 19-country bloc, the IMF said a further global growth slowdown could derail the euro area’s domestic demand-led recovery, and further Brexit spillovers, the refugee surge, increased security concerns and banking weakness all could take their toll on growth.
“If the risk aversion is prolonged, we think the growth impact could be larger and at this point, it is very difficult to tell how long that period lasts,” said IMF European Department Deputy Director Mahmood Pradhan.
The IMF has not fully calculated the drag on growth that would result from a full arm’s-length relationship that would revert Britain’s EU status to basic World Trade Organization tariff and access rules.
Pradhan added the change will be significant for Britain as it sends some 40 percent of its exports to the EU. As a result, the growth five years ahead is expected to be about 1.5 percent.