‘Brexit’ uncertainty leads IMF to trim forecast for global economy

Britain’s vote to leave the European Union has led the International Monetary Fund to trim its forecast for global economic growth through 2017, but so far the impact has not been as severe as initially feared.

World economic output will increase 3.1% this year, the same as it did in 2015, and improve to 3.4% growth next year, the IMF said Tuesday.

The forecasts for 2016 and 2017 each were a tenth of a percentage point lower than in the organization’s April World Economic Outlook.

If not for the British vote, dubbed “Brexit,” the IMF said it would have left its forecast for this year unchanged because “better-than-expected economic activity” in the Eurozone had offset “disappointing U.S. first-quarter growth.”

The forecast for next year would have been increased by a tenth of a percentage point from the April estimate.

But the result of last month’s referendum in Britain “creates a wave of uncertainty amid already-fragile business and consumer confidence,” the IMF said.

“The Brexit vote has thrown a spanner in the works,” IMF Chief Economist Maury Obstfeld said, using a British term for wrench.

Britain’s economy now is forecast to expand 1.7% this year — down 0.2 percentage points from the IMF’s April estimate — and just 1.3% in 2017. The forecast for next year is nearly one percentage point lower than the April estimate.

“The vote in the United Kingdom in favor of leaving the European Union adds significant uncertainty to an already fragile global recovery,” the IMF said.

“The vote has caused significant political change in the United Kingdom, generated uncertainty about the nature of its future economic relations with the European Union and could heighten political risks in the European Union itself,” the report said.

The uncertainty is expected to hurt investment and confidence. But the growth revisions caused by the British vote were concentrated in advanced European economies, and the Brexit should have “a relatively muted impact elsewhere,” the IMF said.

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The IMF increased its forecast for growth in the Eurozone this year by a tenth of a percentage point to 1.6% from the April estimate. But the group cut its forecast for 2017 to 1.4% , down 0.2 percentage points from April.

The U.S. economy is expected to expand 2.2% this year, down 0.2 percentage points from the April estimate. The 2017 forecast of 2.5% growth is unchanged.

The IMF warned that the Brexit effect on the global economy could be even worse.

A severe impact scenario — envisioning “intensified financial stress, particularly in Europe, a sharper tightening of financial conditions and a bigger blow to confidence” — would cause global growth to fall to 2.9% this year and 2.8% next year.

But the IMF said that scenario, and a less extreme downside forecast, have become less likely after financial markets stabilized following initial sharp declines after the Brexit vote.

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