IMF Warns of Dis­rup­tive Brexit Threat

Iran News - - WORLD NEWS -

LON­DON (Reuters) - Europe’s econ­omy is now hit­ting its stride, the In­ter­na­tional Mon­e­tary Fund said on Mon­day, but a dis­rup­tive Brexit could re­sult in “ap­pre­cia­bly” lower growth for both Bri­tain and the euro zone.

The IMF’s lat­est Re­gional Eco­nomic Out­look, which looks at more than 40 coun­tries from Ger­many and the UK to Turkey and Rus­sia, said the cur­rent re­cov­ery looks in­creas­ingly as­sured.

It is partly driven by cen­tral bank stim­u­lus and low in­ter­est rates, but also by im­prov­ing fun­da­men­tals, as ev­i­denced by a pick-up in in­vest­ment across a broad range of economies.

“This re­cov­ery looks in­creas­ingly durable,” the deputy di­rec­tor of the IMF’s Euro­pean De­part­ment, Jo­erg De­cressin, told Reuters at a pre­sen­ta­tion of the re­port pub­lished on Mon­day.

“Growth in the euro area has been pos­i­tive for 18 quar­ters, lately around 2.5 per­cent. Many coun­tries in east­ern Europe have seen growth around or above 3 per­cent for some time al­ready. So this re­cov­ery has not only be­come broader but also stronger.”

The IMF’s World Eco­nomic Out­look, pub­lished at Septem­ber meet­ings in Wash­ing­ton, fore­casts re­gion-wide growth of 2.4 per­cent this year and 2.1 per­cent next year, but much has shifted in the back­ground since then.

De­cressin said it sup­ported the Euro­pean Cen­tral Bank’s care­ful ap­proach to cut­ting its stim­u­lus. He also said in­fla­tion jus­ti­fied the Bank of Eng­land’s rais­ing its in­ter­est rates for the first time since the fi­nan­cial cri­sis.

The main un­cer­tainty on the hori­zon re­mains Brexit and what kind of trade re­la­tion­ship Bri­tain can set up when it leaves the Euro­pean Union with the 27 re­main­ing coun­tries.

De­cressin said the IMF’s ex­pec­ta­tion re­mained that a deal with a tran­si­tion pe­riod would be struck. Its econ­o­mists have not run any “no deal” fore­casts, he said, but a “dis­rup­tive” Brexit is likely to have a dam­ag­ing im­pact.

“Under such cir­cum­stances, our con­cern is that eco­nomic growth will suf­fer, es­pe­cially in the UK, but also the euro area,” he said. “We are then pos­si­bly look­ing at ap­pre­cia­bly lower growth than we presently project.”

For now, though, he flagged how much more pos­i­tive the mood was than just one or two years ago, when wor­ries were still rife in the euro zone that Greece would be forced out.

French Pres­i­dent Em­manuel Macron’s pro­pos­als to ac­cel­er­ate euro zone in­te­gra­tion have been an im­por­tant part of that, De­cressin said. He also gave the IMF’s clear­est back­ing yet for plans to con­vert the Euro­pean Sta­bil­ity Mech­a­nism into IMF-style cri­sis lender.

“We are sup­port­ive of the ob­jec­tive,” he said. “With an ap­pro­pri­ate gov­er­nance struc­ture and a strong sur­veil­lance man­date, an EMF (Euro­pean Mon­e­tary Fund) could re­ally strengthen cri­sis pre­ven­tion and man­age­ment.”

An abil­ity to make swift and de­ci­sive de­ci­sions will be key. The euro zone of­ten laboured dur­ing its var­i­ous crises be­cause it needed to get for­mal ap­proval for mea­sures from nu­mer­ous na­tional par­lia­ments.

The IMF has also been left badly bruised by its in­volve­ment in Greece’s rolling cri­sis over the last seven years, which of­ten saw it at odds with Athens and the likes of Ber­lin.

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