IMF lowers global growth forecast as Brexit worries drag on; outlook remains uncertain

The International Monetary Fund has lowered the global growth forecast, once again as worries over Brexit continue to bother markets amid a wave of uncertainty and already-fragile business and consumer confidence.

The IMF’s projection included a nearly full percentage-point reduction in the UK's 2017 growth forecast. The global economy is projected to expand 3.1 percent this year and 3.4 percent in 2017, according to the IMF’s World Economic Outlook.

Further the monetary authority also said that the British economy will expand 1.7 percent this year, 0.2 percentage point less than forecast in April. Next year, the nation’s growth will slow to 1.3 percent, down 0.9 point from the April estimate and the biggest reduction among advanced economies. For the euro area, the Fund raised its forecast by 0.1 point this year, to 1.6 percent, and lowered it by 0.2 point in 2017, to 1.4 percent.

Moreover, had it not been the case of Brexit, the IMF would have left the growth forecast unchanged, following better-than-expected eurozone performance that offset the disappointment witnessed in the UK during Q1. The IMF also had been prepared to raise its outlook for 2017 slightly, by 0.1 percentage point, on the back of improved performance in a few big emerging markets, in particular Brazil and Russia.

In addition, the IMF warned that more negative outlooks and outcomes remain a possibility and that its forecasts are contingent on the assumption that the Brexit effects will gradually play out over time, adding greater tinge of political instability and economic uncertainty in the days to come.

According to the statement issued by the IMF, Brexit’s fallout is likely to be felt in Japan, where a stronger yen will limit growth. It also cut its 2016 growth forecast by 0.2 percentage point, to 0.3 percent. Next year, Japan’s economy, the world’s third-largest, is expected to expand 0.1 percent, 0.2 percentage point more than predicted in April, due to the delay in the consumption tax.

In the US, weaker-than-expected growth in the first quarter prompted the IMF to reduce its 2016 forecast to a gain of 2.2 percent, 0.2 percentage points less than the April outlook. The IMF left its 2017 forecast for U.S. growth unchanged at 2.5 percent.

China’s growth forecast for 2016 is up 0.1 percentage point, to 6.6 percent, and is unchanged for 2017 at 6.2 percent. Brexit fallout is likely to be muted for China, the world’s second-largest economy, because of its limited trade and financial links with the United Kingdom.

"However, should growth in the European Union be affected significantly, the adverse effect on China could be material," the IMF quoted in its statement.

Meanwhile, the outlook for other emerging and developing economies remains diverse and broadly unchanged relative to April.