Friday 22 November 2019

Gloomy IMF cuts growth forecast for UK and US

Brexit still an unknown, says the IMF’s Maurice Obstfeld
Brexit still an unknown, says the IMF’s Maurice Obstfeld

Colm Kelpie Brexit Correspondent

The International Monetary Fund has cut its growth forecasts for the UK, warning of a "tepid" performance in its economy.

But it said the impact of Brexit remains unclear.

The Washington-based fund is projecting growth of 1.7pc for the UK in 2017, down from an earlier forecast of 2pc, slowing to 1.5pc next year. That's lower than the eurozone average, but still fractionally higher than France this year - although it will overtake the UK next year - and Italy.

Any slowdown in the pace of growth in the UK economy is bad news for Ireland given the extent to which the two economies are so interlinked.

"Our projection for the United Kingdom this year is also lowered, based on the economy's tepid performance so far," said IMF chief economist, Maurice Obstfeld.

"The ultimate impact of Brexit on the United Kingdom remains unclear."

The IMF in April raised its forecasts for British growth after the economy withstood the initial shock of the referendum decision in June last year to leave the EU.

But the economy grew by just 0.2pc in the first three months of the year compared with the last three months of 2016 as accelerating inflation - caused in large by part by the fall in the value of the pound since last year's Brexit vote - prompted consumers to rein in their spending.

The IMF also revised down its growth forecast for the United States, warning that it was the "most important" downgrade.

It shaved forecasts for both this year and next to 2.1pc because near-term US fiscal policy looks "less likely to be expansionary than we believed in April".

"This pace is still well above the lacklustre 2016 US outcome of 1.6pc growth," Mr Obstfeld added.

Separate data shows that business growth in the eurozone suffered a slowdown this month.

The Flash Composite Purchasing Managers' Index for July, published by IHS Markit, fell to 55.8 from June's 56.3, still comfortably above the 50 level that separates growth from contraction.

Chris Williamson, IHS Markit economist, said the July fall indicates that the Eurozone's recent growth spurt lost momentum for a second successive month. "It's too early to know for sure whether the economy has merely hit a speed bump or whether the upturn is already starting to fade. The evidence so far points to the former, with the economy hitting bottlenecks due to the speed of the recent upturn."

Irish Independent

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