Daily Management Review

IMF Sees no Economic Upside to Brexit, Warns of Downward Spiral,


05/13/2016




IMF Sees no Economic Upside to Brexit, Warns of Downward Spiral,
The impact of Britain leaving the European Union would range from "pretty bad to very, very bad" and that there were no economic positives to it taking the step, said International Monetary Fund chief Christine Lagarde.
 
If voters opt to leave the European Union after the referendum next month, the IMF has already warned that Britain would be at risk of a spiral of weaker economic growth, lower house prices and diminished foreign investment and Lagarde’s blunt warning came soon after that warning.
 
An exit vote would "precipitate a protracted period of heightened uncertainty, leading to financial market volatility and a hit to output", the fund has said in an annual report on Britain's economy.
 
The report said that Britain's record-high current account deficit could be exacerbated by a sudden stop to investment in key sectors of the economy such as commercial real estate and finance.
 
"Such market reactions could sharply contract economic activity, further depressing asset prices in a self-reinforcing cycle," the Fund said. a Brexit shock could upset the global economy, the fund also warned.
 
In recent weeks, British voters have been bombarded with Brexit warnings. The economy would slow sharply, and possibly even enter a brief recession, the Bank of England said o Thursday.
 
British voters risk paying a "Brexit tax" equivalent to a month's salary by 2020 if they leave the EU, the Organisation for Economic Co-operation and Development has also warned.
 
A week before the referendum and the same day that finance minister George Osborne and BoE Governor Mark Carney are due to make high-profile speeches at the annual Mansion House dinner, a detailed forecasts for the size of a Brexit hit to Britain's economy would be publiched by the Fund, Lagarde said.
 
Questioning the Fund's authority when it comes to forecasting, anti-EU campaigners hit back at the IMF quickly.
 
"Very few people in the media ever pause to ask that question, but its track record is laughable. Its forecasts are never right, it backed the euro and it didn't see the financial crisis coming," Arron Banks, a co-founder of the Leave.EU group, said.
 
Britain was being bullied by the IMF, Vote Leave, the official "Out" campaign, said.  
 
However there does not seem to have been much impact on many voters by the barrage of warnings about the economy. Britons believe staying in the EU would be best for the economy but they are more or less evenly split on how they intend to vote, opinion polls show.
 
The decision of the Fund to publish the report was defended by Lagarde. The report closely resembles the warnings that Prime Minister David Cameron and finance minister Osborne have issued over the matter.
 
"We are not doing it out of politics, this is not the job of the IMF. We're doing it because it's a significant downside risk. And second, it's not just a domestic issue ... it's an international issue," she said.
Hitting investment and weighing heavily on economic sentiment, the MF said Britain could take years to renegotiate trade deals with the EU and other countries after a Brexit vote.
 
(Suorce:www.reuters.com) 






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