Business World

Monday 23 July 2018

IMF warns of global damage from Brexit vote

Christine Lagarde, Managing Director of the International Monetary Fund (IMF). Photo: Reuters/Hannibal Hanschke
Christine Lagarde, Managing Director of the International Monetary Fund (IMF). Photo: Reuters/Hannibal Hanschke
Colm Kelpie

Colm Kelpie

A British withdrawal from the European Union could do severe regional and global damage, the International Monetary Fund has warned.

In its sharpest contribution yet to the debate, the Washington-based fund said a vote for the UK to withdraw from the EU on June 23 could have damaging consequences by "disrupting established trading partnerships".

Business leaders here have been vocal in their concern about the impact of a so-called Brexit on Ireland, with predictions about a slump in trade between the two countries and the plummeting value of sterling.

"The planned June referendum ... has already created uncertainty for investors," the Fund's chief economist, Maurice Obstfeld, said as the IMF published a half-yearly assessment of the world economy yesterday.

"A Brexit could do severe regional and global damage by disrupting established trading relationships."

The Fund listed Britain's referendum as a key risk, along with instability in China and other emerging markets, volatile share prices and a loss of long-term growth potential in advanced economies. The Fund also cut its 2016 growth forecast for Britain to 1.9pc from 2.2pc, the sharpest downgrade for any major advanced economy other than Japan.

Britain's economy grew by 2.3pc last year and government forecasters say it will slow this year and in subsequent years.

The IMF downgraded its projection for global growth this year, made in January, by 0.2 percentage points to 3.2pc.

"The global recovery has weakened further amid increasing financial turbulence," it said.

The Irish economy will grow by 5pc this year - up from the 3.8pc forecast in October - and 3.6pc next year.

UK Chancellor George Osborne, who has a warm relationship with IMF Managing Director Christine Lagarde (right), said the Fund's comments reinforced the case for staying.

"The IMF has given us the clearest independent warning of the taste of bad things to come if we leave the EU," he said.

In February, the world's top 20 economies listed Brexit as a global risk after lobbying from Mr Osborne, officials from Group of 20 countries said.

Supporters of Britain's leaving said the IMF warning also seemed to carry Osborne's fingerprints and the biggest risk for Britain was remaining in the EU.

"The IMF has talked down the British economy in the past and now it is doing it again at the request of our own (finance minister)," said Matthew Elliott, chief executive of the campaigning group Vote Leave.

A spokeswoman for the British Treasury had no immediate comment on Elliott's remarks.

The IMF said Britain's trade with the EU was likely to suffer if it left, especially during the two years after the referendum when it would negotiate exit terms.

On Monday, the City of London said leaving would be a shock to Britain's financial industry.

Irish Independent

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