ECONOMY

IMF cuts Spain’s growth forecasts and issues warning over Brexit

The institution is predicting a slowdown in European economies over the next year

IMF chief Christine Lagarde, pictured in New York this week.
IMF chief Christine Lagarde, pictured in New York this week.Drew Angerer / AFP

The International Monetary Fund (IMF) has cut its growth forecasts for Spain to 2.1% for 2017, compared to the 2.3% it had stated in April. The Spanish government’s own prediction for next year is currently at 2.4%, while the administration is also banking on growth of 3% at the close of this year. Should the IMF’s prediction be confirmed, Spain will find it difficult to continue to bring down its deficit, as it has promised Brussels it will do.

Brexit has “thrown a spanner in the works” of recovery, said the director of the IMF’s research department

In an update to its World Economic Outlook, the IMF states that it was detecting a slight improvement in the global economy at the start of 2016. However, the United Kingdom’s referendum vote to leave the UK – or Brexit, as it is widely known – has turned the situation on its head. The vote has “thrown a spanner in the works” of recovery, said Maury Obstfeld, the director of the IMF’s research department.

“The first half of 2016 revealed some promising signs – for example, stronger than expected growth in the euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies,” she said. “As of June 22, we were therefore prepared to upgrade our 2016-17 global growth projections slightly,” she continued, in reference to the day before the UK referendum on its European Union membership. “But Brexit has thrown a spanner in the works.”

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The IMF is now predicting that the UK will see two-tenths of a percentage point shaved off its growth forecasts for this year, and nearly a whole point in 2017. As a whole, the institution believes that the eurozone will now see a growth rate that is two-tenths of a percentage point lower than it thought just three months ago.

And all of these revisions are down to the effect of Brexit. The Washington-based institution has also said that had it not been for the referendum, their revisions would have been raised slightly in this latest update.

“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 IMF said.

English version by Simon Hunter

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