Daily Market Update: IMF says that Brexit could lead to a cycle of weak growth and lower house and share prices
Published 16/05/2016 | 09:49
The International Monetary Fund (IMF) in a report published on Friday, said that Britain risks falling into a cycle of weaker economic growth and lower house and share prices if voters choose to leave the European Union on June 23rd.
The report also noted that “a vote for exit would precipitate a protracted period of heightened uncertainty, leading to financial market volatility, and a hit to output.” “Such market reactions,” they continued, “could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle.” The warnings were contained within an annual report by the Fund on Britain’s economy.
Seasonally adjusted gross domestic product for the 19-member eurozone grew by 0.5 percent in the first quarter of 2016. This was a downward revision from the previous preliminary flash estimate of 0.6 percent announced in April. Compared with the first quarter of 2015, GDP growth of 1.5 percent was registered from January to March of this year. GDP expanded in all euro zone countries which provided data except Greece and Latvia. The lowering of the estimate comes despite a strong performance from Germany, the biggest economy in the EU, which had its strongest performance in two years. Germany’s GDP grew by 0.7 percent for the first quarter of the year, which was ahead of most estimates.
Meanwhile, in the US, retail sales rose strongly, recording their biggest increase in a year. The surge in sales was led by automobiles, and nonstore retailers, which include shopping websites such as Amazon.com. The data suggests that the economy is regaining some momentum after weak growth in the first quarter. The US dollar hit a two-week high versus a basket of currencies, with the greenback having its best 2 week performance since February as the market speculated whether the Fed is still on track to raise rates before any other major central bank.
In other data released stateside, the University of Michigan Index of Consumer sentiment showed that consumers were feeling more optimistic this month as expectations for future growth hit highs for the year. The index of Consumer Sentiment showed a reading of 98.8 in May, its highest level since June 2015.
Overnight, Asian equities were modestly ahead led primarily by buoyant Japanese stocks which helped to alleviate some of the gloom from soft Chinese data - Chinese investment, factory output and retail sales all missed forecasts.