IMF Cuts Global Growth Forecasts on Brexit, Warns of Risks to Outlook
The International Monetary Fund cut its forecasts for global economic growth this year and next as the unexpected U.K. vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence.
“The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies,” according to the IMF’s World Economic Outlook Update released today.
“Brexit has thrown a spanner in the works,”
said Maurice Obstfeld, IMF Chief Economist and Economic Counsellor. And with the event still unfolding, the report says that it is still very difficult to quantify potential repercussions.
The economies of the United Kingdom (U.K.) and Europe will be hit the hardest by fallout from the June 23 referendum, which prompted a change of government in Britain. Global growth, already sluggish, will suffer as a result, putting the onus on policy makers to strengthen banking systems and deliver on plans to carry out much-needed structural reforms.
In particular, policymakers in the U.K. and the European Union (EU) will play a key role in tempering uncertainty that could further damage growth in Europe and elsewhere, the IMF said. It called on them to engineer a “smooth and predictable transition to a new set of post-Brexit trading and financial relationships that as much as possible preserves gains from trade between the U.K. and the EU.”
The IMF also released its forecast on Nigeria in its latest World Economic Outlook (WEO) titled: “Uncertainty in the Aftermath of the UK Referendum,” posted on its website. The report showed that Nigeria’s growth projection for this year was revised downwards, from the 2.3 per cent it had forecast in its April report. It also forecasts a 1.1 per cent growth for Nigeria in 2017, down from the 3.5 per cent it made in April.
MS. Oya Celasun, Chief of the World Economic Studies Division, Research Department Stated;
The forecast for Nigeria has been revised down for both years, especially this year. There are multiple reasons; one key reason was the supply disruptions in the oil sector due to activity in the Delta Region, for sure. There were energy power outages. The delayed budget didn’t help, and more generally, effects shortages which is, to some extent, being alleviated now, didn’t help with the purchases of intermediary goods investment. All of these factors combined to pull down the forecast for this year. Some of these will ease going forward, hence, the downward division for next year was less and we expect some rebound in growth next year.
The outlook for other emerging markets and developing economies remains diverse. Growth projections were revised down substantially in sub-Saharan Africa, reflecting challenging macroeconomic conditions in its largest economies, which are adjusting to lower commodity revenues.
In South Africa, GDP is projected to remain flat in 2016, with only a modest recovery next year. In the Middle East, oil exporters are benefiting from the recent modest recovery in oil prices while continuing fiscal consolidation in response to structurally lower oil revenues, but many countries in the region are still plagued by strife and conflict,” it explained.
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