Saturday 3 December 2016

Brexit dents investor sentiment as IMF warns of GDP fall

Published 05/07/2016 | 02:30

Christine Lagarde, managing director of the International Monetary Fund, says UK faces losing 1.5pc to 4.5pc of GDP by 2019. Photo: Bloomberg
Christine Lagarde, managing director of the International Monetary Fund, says UK faces losing 1.5pc to 4.5pc of GDP by 2019. Photo: Bloomberg

Investor sentiment in the Eurozone has hit an 18-month low in the wake of the Brexit vote, a gauge has revealed.

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And as construction output in the UK experienced its weakest performance in seven years last month, the International Monetary Fund warned the UK's economy could be 4.5pc smaller than it otherwise would have been by 2019 because of the Brexit result.

The latest Frankfurt-based Sentix research group's index suggests investors are nervous about the potential for a major economic fallout from the Brexit vote.

The index fell to 1.7 from 9.9 in June.

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"The Brexit referendum in the UK hurts investors' expectations for the Eurozone," Sentix said in a statement.

"The Brexit referendum in the UK at the end of June differently affects economic expectations of the various world regions.

Investors clearly differentiate and believe the Eurozone to be the most adversely affected region, alongside the Swiss economy."

It comes as Britain's construction industry suffered its worst contraction in seven years last month.

Financial data company Markit said its construction Purchasing Managers' Index plunged to 46 in June from 51.2 in May, its lowest level since June 2009.

It was the first time since April 2013 the index had fallen below the 50 level that separates contraction from expansion.

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"This is an absolutely dire survey that fuels serious concern over the construction sector ," said Howard Archer, chief UK economist at IHS Global Insight.

It comes as Christine Lagarde told 'Le Monde' that UK GDP could lose between 1.5pc and 4.5pc by 2019 because of the effect of Brexit.

She said there was real uncertainty around what conditions there would be for trade deals with the EU after Brexit.

The aftershocks of the EU vote have also hit the UK's property market, with a foreign bank freezing loans for buyers and some investors pulling out of commercial deals.

Singapore's United Overseas Bank temporarily halted mortgage loans for London properties. Other Asian banks also flagged potential investment risks.

"A number of deals I know have gone down or certainly been delayed," Paul Firth, head of real estate at law firm Irwin Mitchell told Reuters. "Everyone is taking a pause at the moment just to wait until a new normal is established."

(Additional reporting Reuters)

Irish Independent

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