IMF slashes eurozone growth forecast due to Brexit
The eurozone will grow at slower pace in the coming years due to political and economic uncertainty following the U.K. vote to leave the European Union, the International Monetary Fund said Friday.
In its annual report on the currency union’s economy, the Washington-based fund painted a gloomier picture than just four weeks ago, when it released its preliminary assessment of the eurozone.
The IMF now expects the gross domestic product of the 19-country bloc to expand 1.6% this year, rather than the 1.7% it predicted before the U.K. voted to leave the EU. Next year, growth will slow to just 1.4%, down from 1.7% forecast previously. The Brexit effect will last through 2018, when the eurozone will grow 1.6% rather than 1.7%, the fund said.
Inflation this year is also expected to remain at a superlow 0.2%, below the 0.3% forecast ahead of the referendum, and will rise to 1.1%, rather than 1.2%, in 2017 due to higher energy prices, the IMF said.
Mahmood Pradhan, deputy director for the IMF’s European department, said those growth numbers assumed that the U.K. would maintain a close relationship with the EU, similar to that of Norway, and access to the EU’s internal market. Such as scenario would require London to continue implementing the majority of EU law, including rules allowing citizens of other countries to come and work—something that most of the pro-Brexit campaigners have rejected.
The impact would be even worse if the U.K. cuts its ties to the EU altogether and limits itself to global import and export rules set out by the World Trade Organization, he said.
“We would see very major disruptions in trade if we move to the WTO option,” Pradhan said.