In the days leading up to the United Kingdom’s referendum on its future in the European Union (EU) on June 23, the International Monetary Fund (IMF) was roundly criticised for what Britons felt was an unwelcome intervention in their domestic political affairs. The Washington-based monitor and regulator had predicted then that a vote in favour of the so-called Brexit option to Leave would result in a negative hit on the UK economy, one that would sideswipe the global economy and curtail prospects for productivity and growth.
Now, barely four weeks after that British vote, the IMF has followed through with a comprehensive review and forecast on the global economy. And it doesn’t make for pretty reading. The uncertainty created by Brexit will slow the global economy into next year and the IMF says the economic fallout of the populist political protest vote has resulted in confusion that threatens to undermine a global economy that is still in the early stages of a fragile recovery.
Eight years after the financial crisis, where the resultant quantitative easing measures have since been withdrawn, where energy prices have consequently collapsed and where Chinese growth rates have slowed in a reflection of falling demand the world over, the Brexit result adds an ingredient that simply wasn’t needed in a recipe for sluggish performance.
As a result of the British vote, relations with the other 27 nations in the economic bloc have been thrown into confusion — and the prospect of sudden trade barriers and new tariffs may impede growth or, at the very least, weigh on consumer consumption, invester confidence and business expansion. Simply put, there are real negative elements that are hurting growth.
In hard number terms, the IMF says British growth will be hit by a full 1 per cent on its gross domestic product. It says overall global GDP will be reduced by at least 0.1 per cent in 2016 and 2017 — and that’s just within four weeks of the June 23 plebiscite.
The IMF goes further to suggest that across Europe, while growth will continue, the rate of growth will be curtailed by the uncertainty caused by Brexit. While Britain is not a member of the club of 17 EU members who have adopted the single European currency, growth in the Eurozone will face further uncertainty as a result of wobbly conditions in Portugal, Italy and Greece. No doubt, there must now be a certain sense of ‘I-told-you-so’ in the IMF offices. And that’s worrying for us all.
